It seems super weird to me. There are not many places on earth where cities capable of holding millions are built by decree. Even fewer where they are built and then no one moves in.
There are good reasons why this happens in China, but it's still super weird.
I think they're fascinating from a Hayekian point of view, namely that small centralised groups of directors have only a fraction of the information necessary to direct large groups, compared to dispersed but dynamic information flows you get from market economies via the price signalling system. Which explains the vast misallocation of resources and overall malinvestment.
Funnily enough, the person to first advocate as little interventionism as possible for government was Chinese philosopher Laozi, who compared governing a nation to frying small fish for lunch: too much stirring and lunch is ruined.
> imagine if they built vegas and nobody came. that's it, in a nutshell. it's not that weird.
That's fucking weird... I wonder on what scale it becomes weird to you. Imagine we built 100s of cities on another planet and just left it empty...
I do appreciate, if this is the point you want to make, that literally every newspaper, tv station, radio show, photographer etc has done a piece on Ordos. I've read the same article a million times now and it's totally uninteresting. But that's a function of overreporting, it's still inherently interesting to me.
"The man led us through a courtyard, around the back of the school buildings, and suddenly there it was: the yard opened up into a wide, grassy playing field, flanked on one side by raised seating.
On the edge of the grass pitch – regularly mowed, yet never used – we were pointed towards a series of bronze statues. The figures showed children in traditional Chinese dress, frozen in play as the pink silk scarves tied about their necks flapped noisily in the wind.
'Fifty thousand Quai!' the man giggled, ecstatic, before explaining to us that the silk scarves were washed and replaced on a weekly basis."
Apparently thousands of buildings are being maintained, cleaned, even silk scarves on statues getting washed -- for nobody to see.
Who is paying the maintenance workers' wages? The local government?
Not to mention the draw on electricity, which probably points back to some undisclosed amount of coal being burned in a power plant, somewhere nearby...
Likely a consortium of the developers who have 5% occupancy rates and want to sell (look up 'rent a foreigner' for another strange way developers try to sell property) and local government yeah.
This is probably the most relevant comment in the thread.
These ghost cities start that way, but they all end up being populated, and as soon as the flood gates open, they fill up fast. It just takes certain factors reaching critical mass to push them from the 'No one is living there' to 'Everyone is moving in and filling the entire place up'
As usual, the initial settling is largely happening due to the Chinese government applying artificial levers to get people to move there, but that's a tactic they've used successfully on a lot of these "ghost towns"
China is about to become the most indebted nation. At the rapid pace they're accumulating debt, that should happen within the next few years. They've spent wildly to keep the building spree going; even now their real estate market is crashing, it has been falling for a year.
It begs a simple question: how many more people can China transition out of old China's poverty, and into the new China's middle class, before they run out of the ability to accumulate more debt to keep it all going (global consumers are tapped out, which has left China's manufacturing boom dead in the water, with their PMI contracting during a supposed non-recessionary period).
I fail to see how thinking ahead equates to taking on tens of trillions in new debt to fake economic growth. That sounds like they're baking up an economic recipe for future stagnation.
Excellent comment. China overdid their stimulus package in 2008 because of the need to keep the jobs coming. If would have been much better for them if they had used 2008 to slow the growth rhythm to something sustainable (4 to 5%). I think they are now headed to a very difficult transition, probably Japanese-style, because of so much debt.
I don't know for Chinese gov but I know for sure that Chinese families are not used to buy expensive things with money they don't have, so no, I don't agree: China as a whole has a lot of real money in the pockets.
This doesn't make any difference. The Japanese are even more frugal than the Chinese, that is why they have been able to support a deflationary economy for more than 20 years.
And it's just a matter of time yet that these cities become the equivalent of America's hated suburbs. Cities like Greenbelt, MD, and Levittown, NY - planned large communities where everyone can enjoy a picket fence and a driveway. Soon, perhaps, china, too, will have a director that makes a film about the ennui of living in a planned community prominently featuring as a main character a floating plastic bag.
I have been living in China for ten years now, and every time I go to some forgotten fourth tier city or to remote suburbs, I am amazed that so many people live there in a relative harmony and strangers and foreigner can walk around without any risk for their lives or wallets. Nothing compared to so called developed countries whose suburbs cops and even firefighter don't dare going.
In China, even part of real cities are ghost-like. I have a friend who has family in China, and each of their relatives have one or more empty apartments there. They do this because it is one of the few investments Chinese are allowed to make, and they don't need to pay property taxes. If you consider this, ghost cities are not even the biggest problem with Chinese real estate.
I see this as a pyramid scheme. The local municipalities can get away with not charging taxes because so many new construction is going on. But a few years from now when construction has slowed down, they will need money for schools, hospitals, etc. By that time they will have to charge taxes and it will become a losing proposition to maintain empty properties.
Definitely. Plus, the hype that these ghost cities articles try to build feels really forced.
How much emotion can you really capture with a picture of ordinary buildings...just without people walking by. I'm sure there are people there too and the photographers just wait for a good moment when no one is walking/driving by to snap the photo. (Some of the photos from this article even have cars and people there too...)
There have been other stories of "ghost towns" which eventually filled up with people. Perhaps this is just one of those. I always find it fascinating but I also note that a major disaster in a city like Beijing and there is already a bunch of places to house people post disaster. I don't know if anyone else thinks about it in that way but from a civil defense perspective it seems interesting to have "back up" cities waiting.
For other Person of Interest fans I found that Ordos was a ghost town interesting from that aspect of things as well.
It only makes sense if the backup cities are already owned by the government. If populating those cities post-disaster requires government appropriation of an entire city's worth of private real estate assets, the resulting financial and political instability could well dwarf anything wrought by the original disaster.
So you think that the appropriation of unused real estate is worse than whatever disaster led to the mass exodus of a population from a major city. Interesting, but that is not how I think.
I'm not sure I understand this comment enough to agree or disagree with it. The land etc which is Ordos today was appropriated by the state and they built a city on it. It neither destabilized nor affected the operation of the current government of China in the slightest as far as I can tell. This is the same system that decided to flood several cities so that they could build a giant dam. And while their were complaints, it really didn't do the residents much good then either. So I can't imagine a scenario in China where anything the Government chose to do, especially with the reallocation by fiat, of parts of the country to a different purpose, would result in any political instability whatsoever.
It may seem weird to have almost-empty cities, but from a different perspective, a city like that is an amazing resource. If China ever has disaster or other crisis that creates lots of refugees (think Hurricane Katrina), they have a functioning city with lots of space ready for people to go to. Which is pretty awesome, when you think about it.
But these don't really make very good "backup" cities. The housing isn't owned by the government. It's owned by investors, often individuals, and it serves as a sink for money that has nowhere else to go. Real estate and construction investment of this kind is one of the big drivers of the Chinese economy. If the government confiscates property on the scale you're talking about -- even if it's in response to a disaster -- the bottom would drop out of their financial markets. Ain't gonna happen, even in a disaster.
I think you're giving them too little credit. The government wouldn't have to confiscate property in that scenario, they could just buy it. They're not exactly short on money.
That does seem insanely expensive. Maybe the price was quoted in $/m^2 and the unit was mistakenly switched to square feet at some point?
An alternative explanation is that the owners of these houses don't really want to sell them at all for some reason. Maybe keeping the money tied in unsold real estate is somehow preferable to having cash or other assets, due to e.g. government housing subsidies or something?
Nobody wants to take a loss on real estate in China, so they'll just wait until the market is better or they get compensated by the government when they eventually "redevelop" the land (those apartments only have an effective 10-20 year lifespan given quality of current construction methods). They don't take out big loans to buy these places, so there is no liquidity pressure. This is good and bad, no housing market crash but a huge zombie market of low turn over of second hand housing even in much more active first tier cities.
"those apartments only have an effective 10-20 year lifespan"
Economical or political crisis hits, and they'll have to live in those apartments for 50+ years. We've been there already.
How do you build an apartment block these days anyway so it just lasts 20 years? With modern materials it's a bit unexpected.
It's a royally crappy idea anyway. Imagine selling one of those apartments to a person aged 40, who then promptly retires and have to live 20 years in a crumbling home or lose one and go homeless.
"Modern materials" doesn't necessarily mean the most durable or well-suited to the task. It typically means cheap to produce (therefore readily available) and visually... acceptable.
The concrete China uses is pretty cheap actually, and the labor used to put it together is fairly unskilled. They have to build much thicker as a result, which leads to higher maintenance costs (which isn't done) and much quicker degradation.
> How do you build an apartment block these days anyway so it just lasts 20 years? With modern materials it's a bit unexpected.
My rented apartment in central Beijing is about 10 years old, considered fairly high end (we pay 7500 RMB/month for a one bedroom), and is already showing signs of deterioration (and our complex is considered "good" and well managed compared to the other ones in our fairly middle class Sanyuan Qiao area). It is a combination of poor construction techniques + poor maintenance + poor planning. The government and development companies "built to build" with little focus on the long term.
They are already tearing down developments made 15, 10, or 5 years ago, or even before they are finished* for "re-development."
Prices skyrocketed due to housing as an investment. It's a very peculiar thing but basically it was a self-fulfilling prophecy. Houses go from $100k to $120k in two years? Alright well let's buy a house as an investment on a shitty salary, it's free money.
Until everyone said that, and the rate of prices going up kept increasing, and kept reinforcing the investment opportunity myth.
Basic bubble, basically. And it was of course fueled by insane growth in wages.
It's insane. You basically had 20-30 years of 15% growth annually. 20 years of that is 16x. 30 years is 66x. It wasn't quite 15%, but probably 10-11% on average the past 30 years. That means housing prices will naturally rise, and when they naturally rise for decades and there's seemingly free money if you invest in a home, it's easy for an investment bubble to arise that even outpaces wage growth.
Then add to that two more elements: gigantic internal migration (China has internal passports, it's very interesting. But it doesn't stop huge urbanisation).
How big? Well 25 years ago urbanisation was about 25%. Today it's about 55%.
Then add to that population growth of 200 million extra people. What do you get? No joke, half a billion extra people living in cities compared to just 25 years ago, in China. That's insane. That's literally the entirety of North America (more than 20 countries), or all of South America times 1.5, or all of Europe and then some, living in cities, many of them existing ones.
And that's how you get homes worth $200 - 400k, for Chinese who have a $7k GDP per capita, and middle class wages deviating from that only slightly higher.
Partially it's alright. China will still urbanise, it will have to demolish and rebuild many buildings, and its population will add another 100m people. But on the other hand, it's an extremely worrying asset bubble we don't talk about enough. People forget that China was, though far from alone, in some ways quite instrumental in dampening the effects of the economic crisis. One can worry what happens if an economic crisis arises from China itself, as asset prices in some areas are just absolutely batshit insane and will have to be written off at some point, which collapses the house of cards. (selling overpriced property for nothing, which already happens but is inevitable on a larger scale, reduces all property values, who are overpriced too, escalating a major selloff that'll leave tons of debt in its wake. Familiar story of course.)
Sure, assuming housing prices don't continue to grow. But lending rates in China are about 6% or so, just the interest alone on a $200k mortgage is absolutely insane for an ordinary Chinese person. It's almost twice the annual gdp per capita.
Meanwhile here in the Netherlands a typical house will set you back $250k but the per capita gdp is $50k. Of course the Netherlands is wealthier, but you'd think its housing prices would reflect that and show a similar income/housing ratio, roughly speaking, but it's just completely different.
Housing is in a huge bubble and there's a crazy gap between wages and housing in China. If wages continue to grow while houses don't, sure... but that'd also mean people will sell their homes because they're no good as an investment anymore, which pops the bubble, and that'll create a ton of debt as people are stuck with $200k mortgages on a home worth $100k or less, that's structurally so unsound it'll be demolished within 20-30 years.
My outlook is pretty pessimistic tbh. Although it does seem to be a problem confined to particular areas, that must be said.
I'm mildly optimistic. I'm recently back from Saigon which went through a similar thing - new builds were stupid expensive against GDP per capita and peaked around 2008 or so. Then:
"house prices can drop as quickly as they rise. Vietnam's did with a vengeance in late 2010 as the economy slipped. Prices are down by 50 per cent in some parts of the country, and no one is predicting a rebound. Banks are weighed down with bad debt, much of it secured against property..."
Economic growth dropped from about 7% nationally to about 5% and maybe 0% in Saigon but is now back to growing 7%. Property in the overpriced new builds is still down 50% or so but showing signs of recovery - life goes on indeed it's kind of booming just now after being pretty quite a couple of years back. I imagine China will be similar.
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[ 0.18 ms ] story [ 104 ms ] threadimagine if they built vegas and nobody came. that's it, in a nutshell. it's not that weird.
There are good reasons why this happens in China, but it's still super weird.
Funnily enough, the person to first advocate as little interventionism as possible for government was Chinese philosopher Laozi, who compared governing a nation to frying small fish for lunch: too much stirring and lunch is ruined.
That's fucking weird... I wonder on what scale it becomes weird to you. Imagine we built 100s of cities on another planet and just left it empty...
I do appreciate, if this is the point you want to make, that literally every newspaper, tv station, radio show, photographer etc has done a piece on Ordos. I've read the same article a million times now and it's totally uninteresting. But that's a function of overreporting, it's still inherently interesting to me.
On the edge of the grass pitch – regularly mowed, yet never used – we were pointed towards a series of bronze statues. The figures showed children in traditional Chinese dress, frozen in play as the pink silk scarves tied about their necks flapped noisily in the wind.
'Fifty thousand Quai!' the man giggled, ecstatic, before explaining to us that the silk scarves were washed and replaced on a weekly basis."
Apparently thousands of buildings are being maintained, cleaned, even silk scarves on statues getting washed -- for nobody to see.
Who is paying the maintenance workers' wages? The local government?
https://www.bullionstar.com/blogs/koos-jansen/guest-post-5-c...
http://blogs.reuters.com/great-debate/2015/04/21/the-myth-of...
These ghost cities start that way, but they all end up being populated, and as soon as the flood gates open, they fill up fast. It just takes certain factors reaching critical mass to push them from the 'No one is living there' to 'Everyone is moving in and filling the entire place up'
Edit: Looks like it's already begun in Ordos as well. http://tmagazine.blogs.nytimes.com/2015/03/06/ordos-china-to...
As usual, the initial settling is largely happening due to the Chinese government applying artificial levers to get people to move there, but that's a tactic they've used successfully on a lot of these "ghost towns"
http://www.bloomberg.com/news/articles/2015-05-07/here-s-how...
China is about to become the most indebted nation. At the rapid pace they're accumulating debt, that should happen within the next few years. They've spent wildly to keep the building spree going; even now their real estate market is crashing, it has been falling for a year.
It begs a simple question: how many more people can China transition out of old China's poverty, and into the new China's middle class, before they run out of the ability to accumulate more debt to keep it all going (global consumers are tapped out, which has left China's manufacturing boom dead in the water, with their PMI contracting during a supposed non-recessionary period).
I fail to see how thinking ahead equates to taking on tens of trillions in new debt to fake economic growth. That sounds like they're baking up an economic recipe for future stagnation.
I see this as a pyramid scheme. The local municipalities can get away with not charging taxes because so many new construction is going on. But a few years from now when construction has slowed down, they will need money for schools, hospitals, etc. By that time they will have to charge taxes and it will become a losing proposition to maintain empty properties.
How much emotion can you really capture with a picture of ordinary buildings...just without people walking by. I'm sure there are people there too and the photographers just wait for a good moment when no one is walking/driving by to snap the photo. (Some of the photos from this article even have cars and people there too...)
http://www.dailymail.co.uk/news/article-2102074/Spain-haunte...
although things seem to be improving there:
http://www.ft.com/cms/s/0/350b9c8c-43f4-11e4-8abd-00144feabd...
For other Person of Interest fans I found that Ordos was a ghost town interesting from that aspect of things as well.
Why are the prices so high?
Obviously nobody wants to pay $500k - $1 million for a 1,000 sqft. apartment in a Chinese ghost town.
An alternative explanation is that the owners of these houses don't really want to sell them at all for some reason. Maybe keeping the money tied in unsold real estate is somehow preferable to having cash or other assets, due to e.g. government housing subsidies or something?
Economical or political crisis hits, and they'll have to live in those apartments for 50+ years. We've been there already.
How do you build an apartment block these days anyway so it just lasts 20 years? With modern materials it's a bit unexpected.
It's a royally crappy idea anyway. Imagine selling one of those apartments to a person aged 40, who then promptly retires and have to live 20 years in a crumbling home or lose one and go homeless.
Apartment is supposed to be a solid investment.
My rented apartment in central Beijing is about 10 years old, considered fairly high end (we pay 7500 RMB/month for a one bedroom), and is already showing signs of deterioration (and our complex is considered "good" and well managed compared to the other ones in our fairly middle class Sanyuan Qiao area). It is a combination of poor construction techniques + poor maintenance + poor planning. The government and development companies "built to build" with little focus on the long term.
They are already tearing down developments made 15, 10, or 5 years ago, or even before they are finished* for "re-development."
* http://www.zerohedge.com/article/china-proudly-demolishing-b...
> Maybe the price was quoted in $/m^2 and the unit was mistakenly switched to square feet at some point?
May make sense since the m^2 prices would be the more rounded $12,000 and $5,000. Though it's also likely the price was also switched from RMB to $.
Prices skyrocketed due to housing as an investment. It's a very peculiar thing but basically it was a self-fulfilling prophecy. Houses go from $100k to $120k in two years? Alright well let's buy a house as an investment on a shitty salary, it's free money.
Until everyone said that, and the rate of prices going up kept increasing, and kept reinforcing the investment opportunity myth.
Basic bubble, basically. And it was of course fueled by insane growth in wages.
I mean just look at these graphs for wage growth: http://online.wsj.com/media/WAGES.jpg http://ase.tufts.edu/gdae/images/Vernengo_AvgrealwagesChina....
It's insane. You basically had 20-30 years of 15% growth annually. 20 years of that is 16x. 30 years is 66x. It wasn't quite 15%, but probably 10-11% on average the past 30 years. That means housing prices will naturally rise, and when they naturally rise for decades and there's seemingly free money if you invest in a home, it's easy for an investment bubble to arise that even outpaces wage growth.
Then add to that two more elements: gigantic internal migration (China has internal passports, it's very interesting. But it doesn't stop huge urbanisation).
How big? Well 25 years ago urbanisation was about 25%. Today it's about 55%.
Then add to that population growth of 200 million extra people. What do you get? No joke, half a billion extra people living in cities compared to just 25 years ago, in China. That's insane. That's literally the entirety of North America (more than 20 countries), or all of South America times 1.5, or all of Europe and then some, living in cities, many of them existing ones.
And that's how you get homes worth $200 - 400k, for Chinese who have a $7k GDP per capita, and middle class wages deviating from that only slightly higher.
Partially it's alright. China will still urbanise, it will have to demolish and rebuild many buildings, and its population will add another 100m people. But on the other hand, it's an extremely worrying asset bubble we don't talk about enough. People forget that China was, though far from alone, in some ways quite instrumental in dampening the effects of the economic crisis. One can worry what happens if an economic crisis arises from China itself, as asset prices in some areas are just absolutely batshit insane and will have to be written off at some point, which collapses the house of cards. (selling overpriced property for nothing, which already happens but is inevitable on a larger scale, reduces all property values, who are overpriced too, escalating a major selloff that'll leave tons of debt in its wake. Familiar story of course.)
If wages keep growing they could catch up to the house prices somewhat.
Meanwhile here in the Netherlands a typical house will set you back $250k but the per capita gdp is $50k. Of course the Netherlands is wealthier, but you'd think its housing prices would reflect that and show a similar income/housing ratio, roughly speaking, but it's just completely different.
Housing is in a huge bubble and there's a crazy gap between wages and housing in China. If wages continue to grow while houses don't, sure... but that'd also mean people will sell their homes because they're no good as an investment anymore, which pops the bubble, and that'll create a ton of debt as people are stuck with $200k mortgages on a home worth $100k or less, that's structurally so unsound it'll be demolished within 20-30 years.
My outlook is pretty pessimistic tbh. Although it does seem to be a problem confined to particular areas, that must be said.
"house prices can drop as quickly as they rise. Vietnam's did with a vengeance in late 2010 as the economy slipped. Prices are down by 50 per cent in some parts of the country, and no one is predicting a rebound. Banks are weighed down with bad debt, much of it secured against property..."
Economic growth dropped from about 7% nationally to about 5% and maybe 0% in Saigon but is now back to growing 7%. Property in the overpriced new builds is still down 50% or so but showing signs of recovery - life goes on indeed it's kind of booming just now after being pretty quite a couple of years back. I imagine China will be similar.