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China Is Slowing, but One Business Keeps Growing

Friday, 5 Jul 2013 | 4:52 AM ET
Philippe Lopez | AFP | Getty Images

The number of new shopping malls in China is expected to nearly double to a record high this year as developers bet on consumers picking up the slack in the world's second largest economy, says property services firm Jones Lang LaSalle.

The number of new shopping malls built in China's top 20 cities is forecast to jump to 150 this year, compared to 80 in 2012 - that's an almost 88 percent increase, Jones Lang LaSalle said.

The firm also expects the average mall size to increase from 710,418 square feet in 2005 to now exceed over 947,224 square feet.

"We expect to see up to three million square meters (32,291,731 sq ft) of new retail space in the next three years in Shanghai, and maybe three to four million square meters (430,556,416 sq ft) in Chengdu," Eugene Tang, regional director and head of retail, Shanghai and Greater China at Jones Lang LaSalle said in a note. "On top of that emerging cities, such as Jinan, Hefei, Kunming and Changzhou, are adding large quantities of retail real estate."

Tang adds that this trend of growing retail space will likely continue in third and fourth tier cities in the next few years.

News of a record number of malls opening in China this year comes amid signs of a pronounced slowdown in the economy. The Asian giant's economy grew at its slowest pace for 13 years in 2012 and some economists are predicting that the country could miss its growth target of 7.5 percent this year, citing the government's tolerance for slower growth amid implementing structural reforms.

Retail sales, however, have shown signs of a revival after slowing in the latter part of 2012 and early this year. In May, retail sales grew 12.9 percent from a year earlier at around the same pace as April - in line with expectations and still showing double digit growth.

(Read More: Chinese Consumers Are Still Not Spending Enough)

Retail sales results should pick up in the second half of 2013 and next year, according to Steven McCord, local director, China retail research at Jones Lang LaSalle.

"The slowdown we saw last year seems to be receding, and we expect confidence to pick up," McCord said. "Policymakers are serious about promoting consumerism to play a stronger part in overall economic growth, and this should have a positive impact."

China's new leaders have voiced plans to implement reforms in the economy to create more sustainable growth as it transitions away from investment led-growth to a more consumption based one.

(Read More: Push for Change in China as New Leaders Take the Helm)

Concerns that the increase of new malls will lead to saturation in China's retail space are unlikely anytime soon as urbanization is still leading to rapidly expanding cities, McCord said.

"They're [developers are] building to meet current demand as well as building a little bit ahead of demand, because across China you have cities that are expanding rapidly," McCord said.

"We look at a place like Wuhan for example in central China, it is the only significant retail market in its entire province, so people that live in the smaller cities and towns around the province don't have much choice of retail goods and need to travel a few hours to their nearest big city to get the full selection," he added.

- By CNBC.com's Rajeshni Naidu-Ghelani; Follow her on Twitter @RajeshniNaidu

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