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Monday, July 26, 2010 12:01 PM

Implosion of the China "Fabric City" Frenzy

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Here is an interesting translation of a Chinese article regarding textile work and vacant cities in China. My "China Friend" who wants to remain anonymous writes ...

Hello Mish

In Yangzi Delta Region alone, there are dozens of so called “International Garment Cities”. These cities are built under the direction of a local government investment plan. In many cases, huge parcels of land are sold to real estate developers, who promote the sale of individual shops which are to be built inside the garment city. The marketing material often carries the promise of “ high investment return” and “developer will rent” to lure the retail investor from all over China.

However, many so called "garment cities" are very poorly positioned. Moreover, they are a hybrid of department store, factory outlet, distribution center, and many of them have a 50% vacancy rate or higher due to the over expansion in this sector.

The Hua Xia Times, published an article on the World's No1 Fabric City and the financial problems of Wuxi New World Department Stores under tremendous stress with investors calling for cancellation of contracts.

There are total 6000 shops in New World, but more than 3 quarters are vacant. Thousand of retail investors now are demanding the return of the investment from local government and developer.

The 4 billion RMB New World Investment Project began construction in 2004. Now it is a total disaster with very thin customer traffic to generate enough cash flow to pay the shop rent alone.

In Shanghai, Wuxi, Suzhou Area alone, there are dozens of similar so called “ Fabric Cities”, such as Wuxi Orient International Fabric City, Shanghai Sutong International Fabric City, Shanghai Yangpu International Fabric City, Shanghai Fengjing Fabric City, Wujiang International Fabric city, Changshu International Fabric City, Shuzhou Xiangchen International Fabric City, Gaoyou Huang International Garment Trade City, total investment exceed 30 billion.

Besides “Fabric City”, you can find “Electronic City”, ‘High Technology City”, “Tourist City”, so on and so forth, all are investment frenzy built to drive local GDP growth , but in reality, GDP is construction GDP only.
Once again, US perception of China vs. what is really happening in China is far off the mark.

Mike "Mish" Shedlock
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