Tuesday, June 26, 2018
China's eerie ghost cities a 'symptom' of the country's economic troubles and housing bubble
June 26 2018
VIDEO: Why are there dozens of 'ghost cities' in China? (Photo: J Capital research group) (ABC News)
Fancy villas, high-rise apartment blocks, lakes, parks and sprawling road networks: Ghost cities in China have it all. Just one crucial element is missing — the people.
Built for a population that never came, about 50 of these surreal sites lay desolate across the country. But still the construction continues.
These new cities are usually built in rural areas on the outskirts of existing cities.
Designed for populations numbering in the hundreds of thousands, the mass construction projects can include towering high-rise condominiums, huge shopping centres, city squares, street lights and replicas of cities in Europe and elsewhere.
PHOTO: The Yitian Eiffel is one of at least three replica Eiffel Towers in China. (Supplied: J Capital Research)
Dinny McMahon, author of China's Great Wall of Debt, explained the driving force behind the new construction projects, seemingly built for no-one.
"The phenomenon very much has been driven by the debt splurge that really kicked into gear after the global financial crisis," Mr McMahon said.
"Local governments around the country tried to juice and stimulate their economies by building more infrastructure and stimulating the property market."
This seemingly wasteful construction is carried out by both state-owned firms and private companies.
PHOTO: Many people have bought ghost city properties as an investment with no intention of ever moving in. (Supplied: J Capital Research)
China's housing vacancy rates, like many other potentially sensitive data, is shrouded in secrecy.
It is believed the number of empty apartments could have hit as many as 64.5 million — the number of properties that State Grid Corporation of China confirmed to the Beijing Morning Post as not having used electricity for six consecutive months in 2010. However, the state-owned company refuted that number to another Chinese media outlet just days later.
But not all ghost cities stay ghost cities.
Ghost Cities of China author Wade Shepard — who has been documenting the existence of ghost cities since he first stumbled across a sprawling vacant metropolis in 2006 — sees these cities as simply in a phase between construction and inhabitability.
"If you look around, you will think this is a normal city and just assume this is the way it always was, not knowing that 10 years ago people were calling it a ghost city, 20 years ago it was just apartments and villages."
PHOTO: There are huge volumes of apartments being built in many Chinese cities, including Shanghai. (Supplied: J Capital Research)
Mr Shepard said the same kind of construction phase had been seen throughout global history when developed nations first expanded, just not on the same excessive scale as in China.
He hails China's new big city movement as a great success that gives backwater cities the potential to develop and expand.
Unlike many cities across the globe where populations constantly outgrow the infrastructure,leaving city planners to find new ways of dealing with traffic jams and demand for more construction space, China is usually one step ahead.
As one Chinese city mayor said, it was like buying a suit a few sizes too big for a growing boy.
PHOTO: Tim Murray said many of China's most prosperous cities have been created in this way including Shenzen. (Reuters: Bobby Yip)
Consultancy firm J Capital Research has made it its mission to document every ghost city in China, opening a website to show just how much empty property there is across the country.
Managing partner Tim Murray said many of China's most prosperous cities had been created in this way, including Shenzen, which borders Hong Kong and is now China's fourth largest city.
"That is an example of classic designed urbanisation going really well," he said.
Another example is the Pudong new area of Shanghai which was once a "swamp" across the river from the main city.
"I was wrong. It's just been so successful."
PHOTO: The Pudong new area of Shanghai was once a "swamp" across the river from the main city. (Supplied: J Capital Research)
But Mr Murray said these examples were the exception, not the rule.
"This has been replicated now so many times all around the country in locations where it was just never going to work; where it just wasn't a good idea," he said.
PHOTO: Wade Shepard hails China's new big city movement as a great success. (Supplied: J Capital Research)
Mr McMahon said whether a ghost city became inhabited or not depended on its ability to create jobs and industrial growth.
In the case of Zhengdong in Zhengzhou, capital of Central China's Henan Province, Mr McMahon said the Government "threw tens of millions of dollars in incentives" to Foxconn, the Taiwanese maker of Apple's iPhones, so the company agreed to open a factory in the town.
That factory employed 200,000 people and it "jump-started the ghost city overnight," Mr McMahon, a former journalist for the Wall Street Journal in China, said.
"Most Chinese ghost cities don't have the resources — or they don't have the pull — of a major city like Zhengzhou does," he said.
PHOTO: New regulations have now restricted the purchase of villas and apartments in Jing Jin New City to local residents. (Weibo: Herunde)
In Jing Jin New City, a luxury resort town 110 kilometres from Beijing, a high-speed railway line provides hope for a similar "jump-start".
There are currently only a few small shops, so most home owners only visit during the holidays or on weekends, Ms Fan, who works for Jing Jin New City Real Estate, said.
The rail line to Beijing is set to open next year, but new regulations have now restricted the purchase of villas and apartments in Jing Jin New City to local residents, shutting out residents of Beijing who Ms Fan said made up 70-80 per cent of buyers.
"It's very difficult to sell now," she said.
"There are customers who are interested, but they can't buy it."
PHOTO: Yujiapu Financial District in China's Tianjin Binhai New Area is inspired by Manhattan. (Supplied: Wade Shepard)
While other ghost cities might be largely empty, the apartments were mostly sold, Mr McMahon said.
Many people buy the property for investment with no intention of ever moving in, so supply significantly outweighed demand.
"And this speaks to the underlying problem of the Chinese economy … the importance of the property market and the extent to which it's actually a bubble propping up prices," he said.
Mr McMahon said he believed ghost cities were a "symptom of the problem" of how the Chinese economy worked, where growth was driven by debt.
"We're now in a position in the Chinese economy where so much debt has been accumulated in the interest of building an incredible amount of waste, whether it be empty housing, empty factories, infrastructure in cities where the local authorities can never repay it … that sort of model of economic growth cannot continue," he said.
"Everybody knows it. The officials in Beijing know it and have been trying very aggressively to both wean the economy off debt and try and come up with a new driver of growth."
PHOTO: Mr McMahon believes ghost cities are a "symptom of the problem" of how the Chinese economy works.(Supplied: J Capital Research)
Officials in Beijing talk a lot about needing to move up the value chain into more technologically advanced industries, and that innovation is the way of the future for the Chinese economy.
"But at the moment, Beijing is really between a rock and a hard place because the economic growth is dependent on the accumulation of debt used to build stuff and it's no longer sustainable without potentially something going very, very wrong."