This City Is a Booming Microcosm of China's New Economy

  • Dalian accelerates for seven quarters even as Liaoning slumps
  • Winners and losers emerge across nation as economy transforms

It’s been a harrowing few years for Xu Lifei in the northeastern port city of Dalian. Her husband’s income halved in 2015 as the steel industry slumped across the rust-belt province of Liaoning. Now she’s being laid off as the shop where she sells bed linen is set to close.

Across the city at China International Travel Service Corp., business is booming. Tour groups heading abroad have doubled over the past year and more customers are visiting Western destinations including the U.S. and Europe, says travel agent Cao Yingying.

Derelict buildings in front of the business district in Dalian.

Photographer: Qilai Shen/Bloomberg

These contrasting fortunes illustrate China’s transition toward consumption and services to cut reliance on debt-fueled infrastructure spending and smokestack industries. The shift is throwing up winners and losers across the nation, as shown in microcosm in Dalian -- a city of gleaming towers, vibrant services and high-end retail that feels a world away from the fading industrial areas more commonly found in China’s worst-performing province.

"Divergence is increasingly defining the country as the economy evolves," said Andrew Polk, Beijing-based head of China research at Medley Global Advisors, which advises institutional investors. "While there are pockets of economic stagnation, there will also be pockets of vibrancy. Overall sentiment toward China has become so bearish over the past couple of years that people tend to overlook those pockets of vibrancy."

Case in point: Dalian. The city’s economy has accelerated for seven consecutive quarters and racked up an expansion of 6.5 percent last year. Liaoning overall contracted 2.2 percent in the first nine months of 2016, according to official data.

It’s a boom-bust contrast that’s obscured by remarkable stability in overall growth across this vast nation of 1.4 billion people. Data scheduled for release Friday are forecast to show the world’s second-largest economy expanded 6.7 percent in the last three months of the year, according to the median estimate of economists surveyed by Bloomberg News.

That would be the fourth consecutive quarterly expansion of 6.7 percent, a consistency that fuels skepticism over the reliability of official data. Those doubts were exacerbated this week after the People’s Daily reported Liaoning fudged fiscal numbers from 2011 to 2014.

Nationwide industrial production likely expanded 6.1 percent in December from a year earlier and retail sales rose 10.7 percent while fixed-asset investment excluding rural was up 8.3 percent for the year, economists project before reports due 10 a.m. Friday in Beijing.

Logistics Hub

With swathes of the northeast in dire straits, modern Dalian is a standout. A logistics hub for northeast Asia and the wealthiest city by per capita GDP in Liaoning, it’s picturesque tree-lined streets were lit by colorful Christmas and Lunar New Year lights this week. Luxury goods from Chanel to Gucci and Prada tempt buyers in department store windows in a city where services industries accounted for almost 54 percent of the economy in the first nine months of last year.

The Dalian International Conference Center and the business district.

Photographer: Qilai Shen/Bloomberg

China International Travel is plugged into the upside. It has expanded its menu of package tours as outbound trips boom, adding exotic destinations from Cuba to Panama.

"Everyone is traveling," Cao said in an interview interrupted by incoming phone calls about visa issues and travel documents. "This is an all-citizen tourist era. People have had a transformation in their thinking about consumption and would love to go abroad."

Sheet saleswoman Xu, on the other hand, has felt the brunt of the downturn. Her husband’s steel trading business floundered in 2014, causing his income to plunge from 200,000 yuan ($29,000) a year to about 120,000 yuan in 2015, just enough to cover living costs, she said in a 45 minute interview in-store during which no customers bought sheets.

She’s seeking a new job after her employer announced that the linen store -- part of a nationwide chain -- would be shuttered about a year after opening in the Roosevelt Plaza shopping center.

"There are lots of people in this department store, but if you look carefully they’re not buying much," said Xu. "Our business is good in the southern part of the country but as you go further north it gets worse."

Fiscal Support

To keep growth humming, the government increased its fiscal support last year. And the central bank, while switching its policy benchmarks to neutral, poured cash into the economy via new lending channels and the nation’s policy banks.

Dalian’s government is also doing its part. It expedited infrastructure construction last year including building roads, tunnels, subway lines and parks, according to a government work report. This year, it will continue to accelerate investment and targets starting 690 projects exceeding 100 million yuan each. It also vowed to expedite construction of a new airport, an under-sea tunnel, a bridge over the ocean and three new subway lines, the report said.

Massive growth in the upper middle class of Dalian is ensuring strong demand for luxury products and the buying power is improving, says Gajendra Sharma, acting general manager of the Conrad and Hilton hotels in Dalian. 

The Roosevelt Plaza shopping mall.

Photographer: Qilai Shen/Bloomberg

The same trend is driving sales at China International Travel, where the slowdown in the region’s industrial economy has had minimal impact on business, according to Xu.

"Average incomes are rising and people have more money in their pockets," she says. "Sales will keep growing, but a bit slower, just like we’re seeing in the economy where growth isn’t as strong as it used to be."