by Deborah Hastings The Financialist

In China, where fast-paced real estate development has created thousands of massive shopping centers, the amped-up development bubble has left some cities with more malls than they can handle, suggesting this trend may be about to run out of steam.

By 2015, China will have more than 4,000 shopping centers, a 40 percent increase from the approximately 2,800 that have already sprung up across the country, according to the China Chain Store and Franchise Association. Retail growth, though, was just 12.1 percent last year after adjusting for inflation, according to China’s National Bureau of Statistics.

Such retail growth figures, which might be considered a sign of success in developed countries, still represent a marked slowdown from previous years when growth was as high as 20 percent.

“One of the most frequently-asked questions by investors is whether China is oversupplied in terms of retail space,” Credit Suisse analysts wrote in a recent report entitled “China Retail Sector: Looking for the Safe Harbor.” “Our answer is yes.”

Continuous new building in cities with established shopping centers has sparked fierce competition and developers have also been expanding aggressively into less populated cities where revenues are usually lower at first.

In 10 so-called Tier 2 cities – a notch smaller than giants such as Beijing and Shanghai – shopping malls expanded at an annual rate of 39 percent from 2008 to 2011, Credit Suisse analysts found. Vacancy rates rose, too.

“The general rise in vacancy rates indicated that local demand was having a hiccup in trying to absorb the bulging supply,” the same report said.

Developers are rushing to take advantage of the fast-growing number of Chinese citizens with cash to spend. But the sheer speed of the property boom may have outpaced economic realities in some areas. China now has about 77 percent as much retail space per capita as the United States did in 1973, even though Chinese consumer incomes are only about 44 percent of what U.S. incomes were the same year, Credit Suisse analysts calculate in the report.

Perhaps the most dramatic example of shopping space exceeding local needs is in Guangdon. Seven years after it opened, the New South China mall remains deserted. It is the world’s biggest shopping center in terms of leasable space and its 20 acres include in-house canals and a go-cart track.

Credit Suisse analyses show that the glut is worst near Shanghai, Wuhan, Zhengzhou and Shenyang. Shenyang alone has a 24 percent overall vacancy rate.

But there are also bright spots where retail developments are succeeding. Credit Suisse rated Wuxi, Nanjing and Hangzhou as “good” markets due to their residents’ high levels of disposable income, a strong presence of luxury stores and low vacancy rates. In Hangzhou, for example, a 27 percent population spike over the last decade and new subway lines have helped malls thrive.

But the brightest star in the Chinese retail sky may be in cyberspace, rather than any fast-growing city. Internet sales doubled in 2012, according to numbers recently released at the World Economic Forum in Davos, Switzerland.

November 11, the “Valentine” holiday of Single’s Day in China, recorded historic sales for online retail giant Taobao, which created the holiday. Last year, two major online retailers raked in 19.1 billion yuan (about $3 billion) in sales, up 260 percent from 2011, according to Credit Suisse data.

Vast expansions of China’s Internet infrastructure and improvements in network capabilities have opened up online shopping to many rural residents, most often on mobile devices such as smart phones. Online retailers also often offer deep discounts on high-end items such as computers and tablets.

In the first half of last year, online orders via mobile devices increased 59.7 percent from the preceding period, according to the China Internet Network Information Center.

So, while it remains to be seen whether China’s appetite for consumption can keep shopping malls hopping, e-retailers seem to be enjoying a moment in the sun.

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