Before you even attempt to answer that question, you need to ask yourself an initial question; in a city of a million people, what would convince a Chinese investor to build a million square foot mall when there are already a half dozen completed ones that are more than half vacant? If your answer includes the words; corruption, greed, stupidity, easy credit, central planning, lax oversight by banks, state enterprises looking to diversify out of money losing businesses and/or money laundering, you have a good understanding of how China functions. If you use words like return on capital, profitability, or sector analysis, you need to stick to American companies.
… so why would they keep building these things?
“Let’s say I’m a well-connected Chinese guy and I want to make money. In the old days, I would just steal from the party. Now the party pretends to care. They want to make examples. So now, I build a mega-project. If it costs $250 million to build it, but you borrow $400 million from some corrupt state owned enterprise, you can steal the rest of the money. Building some government project involves bidding and the politics of winning the right to build it—there is a certain level of oversight from above; no one ever notices if you build a mall, so you just keep building away. If there are no profits early on, it doesn’t matter—it will take 5 years before anyone catches on—by then, you’re in Thailand. In the short term, the government wants you building things to create fake growth. They’re actually rooting for you to build yet another mall.
If you want to reinvigorate things, the best way to do it is with thousands of mega-projects. Empty malls, bridges to nowhere, high speed trains connecting isolated farming villages. You get the idea. This is China with a need for growth. They’ll get it, somehow or another. Just don’t expect to be able to analyze it using a Western financial mindset. There are different forces at work here. Sure, China has horribly misallocated capital, but it will get a whole lot worse during this decade. Will there be a crash? You can count on it, but it’s still years into the future. If you have a half dozen malls that are empty, why not build two dozen more? Welcome to China…