Managing the development of underground shopping malls

High real estate prices in Chinese cities have led land developers to look into the possibilities provided by underground space. Yu Ronghua, Chen Zhilong (University of Science and Technology of Nanjing) and Ye Quanyi1  describe the new underground shopping malls that have been built in China, but point out that this model is not always successful and vacancy rates are still quite high in many cases.

According to the authors, the opening of underground shopping centres is a consequence of the new utilization of underground space. Many of these shopping malls were actually military facilities, but civil defence air-raid shelters have become unnecessary in a peaceful environment. Because of high real estate pressure, these facilities have been transformed into commercial units. The creation of new subway lines in China’s large cities has also increased the amount of available underground space. Nevertheless, despite rapid urbanization, some underground malls remain partially empty.

For land developers, underground shopping malls can be a golden opportunity, as the developers do not have to pay land use rights and are also exonerated from land appreciation taxes. Despite these advantages, not all projects are successful, and vacancy rates can be quite high in some underground shopping malls. This can, of course, be attributed in some cases to external factors such as a poor choice of location, but the authors place the blame primarily on mismanagement of underground spaces and short-sightedness on the part of land developers. After receiving operation rights from the government, land developers sell these rights to individual shop owners – at a huge profit.  But individual shop owners do not have the experience and financial resources to develop their activities. By selling operation rights to multiple owners, instead of leasing them, land developers lose control over the management of the underground shopping malls; this leads to the duplication of shops and a lack of cohesion in the shopping centres – and ultimately, high vacancy rates.

The authors believe that the failure of underground shopping malls can be explained by the absence of a national set of regulations governing these shopping centres: cities and provinces have different rules. The authors also argued that without uniform regulations, the sale and management of underground spaces remain opaque. A national regulation limiting the sale of operating rights to individual shop owners might be one possible solution to this problem.

Another issue, which this article does not fully address, is the continuing interests of the army in underground construction. It seems obvious that these underground shopping malls are (thankfully) very unlikely ever to be used again as air-raid shelters.  This being the case, why does the army still intervene in this sector? This only makes the issue of underground construction even more opaque. It also creates a situation of unfair competition between those who have developed their programmes through acquisition from municipal governments (and are thus subject to municipal regulations), and those who have received operation rights from the army (and thus are not subject to any regulations).  The ownership of underground space should be transferred to urban local governments, who will then put out tenders for underground development projects.

The authors call for a clarification of the policies regulating the sale and management of underground spaces. There should be no distinction between underground shopping malls and other shopping centres.  Local government authorities should not be directly involved in land development, but should better monitor this sector. The authors also warn local governments about the scarcity of underground spaces, and the possible consequences of underground construction on the environment: underground construction should be better planned, and this task should be performed by local authorities.

We fully agree with the authors that the underground land development sector must be made more transparent, and thus more efficient.  In our view, the Chinese authorities should look at what has been done in Hong Kong, where MTR, the company in charge of the subway network has developed successful underground commercial complexes along the lines it manages. This experience may be useful for the future of underground shopping malls in China.

Finally, it will always be in a city’s interests to strictly manage underground construction, as a poorly managed shopping centre will affect its image. If a shopping mall is half-empty, with closed shops, consumers will look for another place to take their custom; this will have consequences on other local shops, thus devitalizing an entire district. We join the authors of this article in appealing to local governments to focus on the regulation and planning tasks before them.

  1. YU Ronghua, CHEN Zhilong, YE Quanyi (2011). Research on Development Pattern of Underground Shopping Malls in China. Management Science and Engineering, 5-4, 16-20. (accessed January 20, 2013)  []

Sebastien Goulard

Ph.D. in political science (EHESS, Paris); M.A. in social sciences (EHESS, Paris); M.A. in international relations (IRIS, Paris), B.A. (Hons) in international political studies (ESE - Nottingham Trent University)

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