Going Upscale

During my recent visit to Beijing, there were pockets of the city that I recognized as being unchanged since at least 2003, but large sections were stunningly transformed in the run-up to the 2008 Olympics. Unlike the city's pre-WTO growth, when changes could be measured largely by new fast food restaurants, supermarkets, and apartment towers, the latest transformation is characterized by "top-quality" office space and luxury-brand retailers.

The story behind Beijing's rise as a 'city of the world' had always been marked by its short supply of quality office space. The story behind The China World Trade Center, if ever it is told, could be summed up as a license to print money. Opened in 1990, China World was the address for anyone looking to open a representative office in China to await the next big thing (be it MFN status, PNTR designation, WTO entry, or whatever). If you weren't there, you were nowhere.

Developers were quick to meet the excess demand, but while they succeeded in scooping up most of the city's prime real estate, the buildings they constructed typically fell woefully short of world-class standards. Sci-Tech Plaza is an example. It is an easy walk from Tiananmen Square along Beijing's main thoroughfare and sits adjacent to the Second Ring Road (one of several concentric expressways surrounding the city; the Second Ring more or less tracks the old city wall, the "first" ring is, presumably, the moat around the Forbidden City). When new, the complex was merely an eyesore. Years later, it is a depressing combination of sooty, crumbling exterior tile and oversized billboards. Still, its retail wing is home to such brands as Burberry, Armani, and Bentley Motors. The office units are as resplendent or as neglected as their tenants desire, but the common areas are cramped and showing their age. One occupant, a global marketing/PR firm I met with, was counting the days until its scheduled move to a new tower in the heart of Beijing's CBD, which overlaps the eastern section of the Third Ring Road and is anchored by the ageless China World. Despite its off-center location, the CBD is now the closest thing this sprawling city has to a "downtown".

Amazingly, Sci-Tech is a gargantuan success in comparison to the Henderson Centre, its neighbor just inside the Second Ring Road and even closer to Beijing's historical and political nucleus. Entering the building causes a pang of claustrophobia, as the ceilings are remarkably low and the floor plan downright labyrinthine. Its location next to the city's main rail station means a steady stream of humble Chinese travelers (read: peasants) course through the complex at all hours looking for restrooms. Tenants began to flee both the office and retail sections as early as 2002, which was roughly the time that A&W abandoned the food court, and apparently China altogether. That location was my first and only experience with A&W fare, and I can only imagine key elements were lost in the company's "translation" to the China market. Even when starved for comfort food, the burgers were a disappointment and left me deeply chagrined when Chinese colleagues asked, "Is this what people eat in your country?"

My first trip to Beijing in 1996 was punctuated by my many dealings with the city's sellers of counterfeit goods--everything from "jade" trinkets to "Norwegian" sweaters. I browsed pirated CDs in the gutted, two-story ruins of a lot that is now home to the LG Twin Towers. The infamous Silk Alley, once an open-air market of fake North Face, Nike, and Levi's products, among many others, has been reborn as a four-story megamarket of more than 1,000 vendors. Behind a thin veneer of IPR respectability lies most of the same stuff that was available in the good old days. All you have to do is ask.

But while Silk Street remains a high-profile embarrassment (the northern tip of the original "alley" emptied onto the doorstep of the former U.S. embassy), it is not representative of China's overall IP problem. Fake pharmaceuticals, pirated software, shoddy building materials and machine parts marketed as international brands, to say nothing of the many "genuine" products that are tainted by harmful additives, solvents, and other chemicals, are the real danger. Silk Street is a quaint novelty in comparison. Moreover, foreign tourists are its biggest customers.

There is reason for hope, however. As they did with China's overall economic development, the country's upper and upper-middle classes will eventually lead the way to better IP protections and heightened consumer safety. For all the talk of China being a "classless" society, the average Chinese professional is as status-conscious and brand-aware as any Manhattanite. iPhones, Mont Blanc pens, designer bags, Swiss watches, and coffee at Starbucks are some of the many "subtle" ways that upwardly-mobile Chinese flaunt their wealth. A stroll through Beijing's newest department stores had me Googling several brand names previously unknown to me, only to discover that they are among the tops in European fashion.

In my hasty crisscrossing of Beijing's Dongcheng and Chaoyang districts, I didn't see any McDonald's or KFCs that hadn't been there since at least 2004, but those looking for the latest from, say, Luis Vuitton, now have at least three boutiques to choose from (not counting the airport shopping gallery). And Beijing has joined the short list of cities worldwide that feature an Armani "concept" store. When Chinese yuppies shop, they want the genuine article and are increasingly able to afford the very best.

We are a long way from ridding the shelves of China's rural markets of boxes of "Colaate" brand toothpaste or "Heed and Sholders" shampoo, but I predict a trickle-down effect from the absurd heights of Beijing's conspicuous consumption.