THOUGH Xintiandi hasn't yet reached the break-even point, it has been recognized as a successful business venture throughout the country.

In less than two years, Xintiandi has become accepted as the city's most fashionable area and is now listed as one of Shanghai's scenic spots, with most of the others having a long history, such as the Bund or Yuyuan Garden.

In business schools, Xintiandi is taken as a classic case of successful real estate development. The Shui On Group Chairman Vincent Lo is also invited to various seminars to talk about his experience.

This type of success always becomes a target for businessmen to try to "copy". Pan Shiyi, a Beijing-based real estate tycoon, used to declare his intention to construct a shopping street as "a Xintiandi in Beijing". Another famous real estate developer in Beijing, Zhang Baoquan, also said he would plan his community according to the Xintiandi model. The name of Xintiandi has become a kind of symbol of success.

Economy of scale

Lo used to tell the media about the main reason for the success of Xintiandi: it is oriental to expatriates, offers a little Western glamour to Chinese; elders can enjoy its old fashioned feel but young people can be moved by its modern pace. Everyone can find something they like in Xintiandi.

"Xintiandi successfully presents a new concept which combines history, culture and consumption together. It is the first time Shanghainese have seen such a concept and they have become addicted to it quickly," said Zhu Lianqing, director of the Commerce Research Centre of the Shanghai Academy of Social Sciences.

Xintiandi is not very big, covering a total area of 60,000 square metres. Compared with all the shopping malls in the city which pursue the goal of being "the largest", Xintiandi even looks rather low profile.

Statistics show there are a total of over 300 shopping malls in China. Over 200 projects under construction are said to be over 100,000 square metres in size. The city's largest mall, the Super Brand Mall in Pudong, covers 240,000 square metres.

Huang Guoxiong, a professor at the Renmin University of China, used to criticize the construction of excessively large shopping malls as a kind of blindness which plunged them into cut-throat competition with other department stores and shopping centres.

"But Xintiandi didn't follow the now-abandoned understanding that 'the bigger the better', but rather created a nice shopping structure focused on culture, entertainment and fashion," Zhu said.

"And its market position is very specific: expatriates and white collar professionals with good incomes."

The location of Xintiandi, which is in the "downtown of downtown", the quality residential houses nearby and the neighbouring Huaihai Zhonglu - a high-end shopping street - all give the area powerful support.

In addition, the site of the first Communist Party Congress also adds to the allure of Xintiandi. The official opening of Xintiandi took place on June 30, 2001, just one day before July 1, the 80th anniversary of the Communist Party. Most high-level leaders would have come to the site on that day in any case. Without spending a penny, Xintiandi won a free promotion around the country.

Smart strategy

Actually, Shui On's goal was not just to make a profit from the Xintiandi project. Even higher profits are expected from the nearby real estate project Lake View, also invested by Shui On Group. The price of the first-phase houses have shot up to between 17,000-25,000 yuan (US$2,055-3,023) per square metre since the initial sales in mid-2002, setting new record highs in the city.

According to industry norms, the advertising investment for a real estate project comes to between 1 to 2 per cent of total sales. The Lake View project covers a total area of 800,000 square metres. But Lo told China Business that the company hadn't invested a penny in advertising, even though thousands of people were lining up to buy second phase of houses.

"This is Lo's smart strategy. The Xintiandi project pushes the real estate which makes up for the temporary loss in Xintiandi," Zhu said. "That's why Lo said he wouldn't ultimately see a loss from it."

Not just a copy

This year, Lo opened Xihu Tiandi in Hangzhou, capital city of neighbouring Zhejiang Province, which is seen as the Hangzhou version of Shanghai's Xintiandi.

Though the opening day of Xihu Tiandi, on May 1, unfortunately occurred during the SARS period, there were still 150,000 people who visited the area during the first week.

For a long time, Xihu (West Lake) has had two shortcomings: the first was that international visitors only accounted for 3 per cent of tourists, the other was that people had no places to go at night.

Undertaking research into Shanghai's Xintiandi made a deep impression on Hangzhou government officials. Shui On accepted the invitation to develop the Hangzhou site and invested 1 billion yuan (US$121 million) in the first-phase construction of Xihu Tiandi.

The new project covering 30,000 square metres by the lake is expected to constitute a new scenic spot in the city.