The story of ghost cities in China has been around awhile. Over this time there has been furious debate about their significance--do they represent a complete loss of capital, or are they a clever investment which will (one day) pay off? I place myself in the former camp.
Intuitively, it seems reasonable that a ghost city (or ghost mall, or ghost city hall) may count as an investment, as it represents a hard asset that may be used in the future. But this presupposes that the hard asset was built to a high enough standard to endure standing empty for as many years as it takes to become occupied.
Already, the signs have appeared that a great number of unoccupied buildings are destined to remain that way for the foreseeable future. For instance, our local handler told me the other day that the government has used a tool which could be translated as a local residency permit to control population movement within the country. A resident of, say, Beijing was not free to move to another city, unless he first obtained one of these permits. Such permits would be granted if a state corporation transferred him to a new city. Before the boom, simply buying property in Zhengzhou was sufficient for such a permit to be granted. However, as the boom proceeded, and real estate prices began to rise sharply, the government changed the rules, forcing people to qualify for a permit first before being granted a permit. Now that the market is beginning to fall, the government has hastily reverted to its original position--granting a permit upon purchasing property.
So let's take a look at how the empties are holding out. As I am currently in Zhengzhou, that will be our testing ground.
I actually went off in search of a ruined village called Dahe, but found a ruined megamall instead . . .
It actually took me awhile to recognize what this place had to be.
Evidently the place was open at one time.
Overgrown pedestrian walkway.
Padlocked warehouse full of cars.
Seems to be rather a lot of cars.
From time to time, a car drove around the endless track between the buildings--always a different car, driven by the same people.
Beyond the wall were many, many more cars "owned" by the same dealership. All needing to be driven around the parking lot once every couple of weeks.
Intuitively, it seems reasonable that a ghost city (or ghost mall, or ghost city hall) may count as an investment, as it represents a hard asset that may be used in the future. But this presupposes that the hard asset was built to a high enough standard to endure standing empty for as many years as it takes to become occupied.
Already, the signs have appeared that a great number of unoccupied buildings are destined to remain that way for the foreseeable future. For instance, our local handler told me the other day that the government has used a tool which could be translated as a local residency permit to control population movement within the country. A resident of, say, Beijing was not free to move to another city, unless he first obtained one of these permits. Such permits would be granted if a state corporation transferred him to a new city. Before the boom, simply buying property in Zhengzhou was sufficient for such a permit to be granted. However, as the boom proceeded, and real estate prices began to rise sharply, the government changed the rules, forcing people to qualify for a permit first before being granted a permit. Now that the market is beginning to fall, the government has hastily reverted to its original position--granting a permit upon purchasing property.
So let's take a look at how the empties are holding out. As I am currently in Zhengzhou, that will be our testing ground.
I actually went off in search of a ruined village called Dahe, but found a ruined megamall instead . . .
It actually took me awhile to recognize what this place had to be.
Evidently the place was open at one time.
Overgrown pedestrian walkway.
Padlocked warehouse full of cars.
Seems to be rather a lot of cars.
From time to time, a car drove around the endless track between the buildings--always a different car, driven by the same people.
It turns out they were operating an open-air car dealership immediately adjacent to the supermall. They were driving each of their cars a little way to keep them running while waiting desperately for sales.
Bill Bishop at the Sinocism blog has noted the "ghost cities" meme has little bearing on the reality in China.
ReplyDeleteNote also that the cost of building hard assets skyrockets as a country becomes more industrialized. It also skyrockets as demand for raw materials increases worldwide. Do a go/nogo calc for differential NPV for build-today versus defer-10-years. It can be huge.
We in the west are seeing this today with the costs for subway expansion - or freeway replacement in the case of Toronto. It literally boggles the mind how cheap it was to build subways and raised highways 50-100 years ago.
I'd think there's also a huge differential NPV for massive centrally-planned projects versus uncontrolled sprawl. So you build expansion ten years ahead of time to avoid the social cost of just-in-time (or not-in-time) planning. The sunk costs are no big deal when you're a totalitarian state - you just order everyone to move there.
Anyway, Bishop says this is a non-issue and he lives there, so I'm not worried. And it's a meme that the American media are fixated on, which probably means it's an utter waste of time to worry about.
You have a point about the totalitarian gov't.
ReplyDeleteMaintaining the properties until they get used would be a big help.
I'll agree that intensifying development in a modern urban setting, with its complex network of competing interests, is much harder and more expensive than finding an empty field somewhere and building a new city.
Not just that, but EM cities tend to "develop" in a grossly haphazard and toxic way, with a thick ring of densely populated slums hemming in the city. I would expect that getting ahead of that, and maintaining absolute control over planning and growth, would require "overinvestment".
DeleteBTW, "intensifying development in a modern urban setting", in China, has always meant bulldozing slums and making the people there very sad. Avoiding more unrest by blowing a couple trillion yuan seems somewhat prudent.
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