The face of the river, in time, became a wonderful book . . . which told its mind to me without reserve, delivering its most cherished secrets as clearly as if it had uttered them with a voice.
-- Mark Twain
In a moment of uncanny timing yesterday, I ran across a link to a fabulous Dateline episode on the topic of China’s ghost cities in a new post by Mike Shedlock at Mish’s Global Economic Trend Analysis. Having just written on the subject here at The Paper Boat, I thought I’d follow up.
The New South China Mall, which opened in 2005, stands empty with 99 per cent of its shops having remained unleased and attractions including an indoor and outdoor roller coaster standing idle.
The Dateline piece, by video reporter Adrian Brown, explains how China’s ghost cities are the result of a government effort to keep China’s Gross Domestic Product booming. China’s economy has been on fire for several years, with last year’s GDP growing near ten percent to make it the second largest economy in the world after that of the US. Chinese leaders have no intention of letting the country’s new economic power status falter. Because of this, there is tremendous pressure to keep the GDP growing, and the simplest way to do that is for the government to keep spending. This keeps people working and goods moving. So the Chinese government continues to funnel massive amounts of cash into infrastructure projects by building massive shopping malls, residential real estate, whole new cities and roads to connect it all together.
One of the most striking aspects of the documentary is the contrast it reveals between the fantasy lifestyles advertised in connection with the new homes of the ghost cities and the reality of how average working people live in China. The majority of the country is still very poor, and despite the illusion of prosperity the government construction provides China is still a developing nation with few resources relative to the size of its population. The average annual wage in the country is $6,000, yet a typical housing unit in the new cities runs $70,000 to $300,000 and up. Only wealthy investors can afford to buy the units, which they have… and everyone waits for a “someday” when people will actually move into them. So the years are passing. The ghost cities remain empty as the populace grows more agitated and the empty buildings begin to show signs of neglect.
China is sitting on the largest property bubble in the world right now. It will not end happily. Many will be left financially devastated. In other words, it looks as though the world’s second largest economy is pumped up on hot air. It’s interesting to see how a communist country like China is vulnerable to the same forces of human nature that our own capitalist nation is. In the US we have Wall Street using the housing bubble to rip off the public for unfathomable personal gain, and in China the government is gaming its own system to achieve world power. The problem is, this all wreaks havoc on the people. And then again, these sorts of power plays eventually result in what might be likened to shooting oneself in the foot, or biting the hand that feeds. Just ask Marie Antoinette. The relentless exploitation of the masses leaves one very lonely at the top of the pyramid, and if revolution doesn’t put an end to the devastation there will eventually be simply nothing left to take. China will pay the price for its decadence one way or another. It certainly seems the country is not the global power it strives to be seen as, in any case.
As Mike Shedlock comments, “All this talk about how undervalued the Yuan is, how China will rule the world, and why the Yuan will be the next global reserve currency is pure silliness.
China’s growth is nothing more than a credit bubble on steroids. Cities are vacant, yet China keeps building, and building and building.
The true state of affairs is China’s banks are insolvent. China is building units for which there is little demand and few can afford. China will have to print money to pay for all of this malinvestment. The idea the Yuan is undervalued fails to take into consideration any of this.”
China is in the midst of a huge housing bubble. Their bubble currently measures 6% of GDP, which was the peak size of the bubble we just experienced in the US. Housing mania has been a global phenomenon. Bubbles in some countries have popped already, while some are still inflating. All are nearing an end and will pop eventually. One sign of distress in the Chinese housing market is the number of vacant residences, which by some estimates tops 64 million.
An empty road winds to nowhere before the vacant residential towers of Zhengzhou New Destrict.
In China people wanting to invest have very few options. The interest on Chinese savings accounts does not keep up with inflation. The stock market there is not stable or accessible. Many who can afford to have instead flocked to invest in residential real estate. This has contributed to the growth of a bubble, while making housing less and less affordable for the Chinese middle and lower classes. A square meter of residential property in Beijing costs an average of 26,000 yuan, but the average per capita monthly income is only 2,000 yuan. The average Beijing resident would have to spend his or her entire yearly income just to buy ten square feet of residential property. There is a huge demand from investors to build, but shrinking demand from residents to buy. What we are seeing as a result is malinvestment in real estate and related infrastructure with whole brand new cities sitting vacant, some of which having been built in some of the least hospitable areas of the country.
Recently I came across some stunning satellite images of China’s ghost cities at the Business Insider website. The scope of the situation is vast. (Click on any of the images to see larger.) Ordos is China’s most famous ghost city. There are no cars to be seen, save a couple dozen parked around the government center which has been glamorously landscaped and maintained.
A beautiful modern art museum sits at the heart of Ordos, totally empty.
China’s largest ghost city is the Zhengzhou New District.
The development, which cost 19 billion dollars, features blocks and blocks of houses and glamorous public buildings all sitting empty. There are no cars or people on the streets.
The city of Erenhot, Xilin Goi, was built in the middle of a desert in Inner Mongolia. Half sits empty, while the other half remains unfinished.
This giant development to the north-east of the Xinyang does not have a name. In the photograph it is identifiable due to the orange color of the exposed earth there.
There are no cars in this city except for maybe a hundred or so parked around the government headquarters.
The city of Dantu has been virtually uninhabited for over a decade. As in the other ghost cities there are no cars or people in the areal images.
The city of Bayannao’er features a beautiful town hall and a World Bank sponsored water reclamation building, but few signs of life.
Kangbashi is a new city with the capacity for housing 300,000 residents. It is home to 30,000.
The giant new campus for Yunnan University was built to accommodate 2.3 million students. Now that’s a big school! However, only 11,000 students are currently enrolled.
China has a population large enough to fill its vacant homes, only no one can afford to buy them and many are in areas that are not viable. In the meantime, the Chinese government announced earlier this month it is going to invest another $200 billion in building homes people can actually afford. This is in response to the problem of rising real estate costs as well as stubbornly high consumer costs and growing income disparity, which leaders believe could lead to social unrest. With the government stepping in to build affordable housing we are sure to see these ghost cities fade even further into obscurity.