China’s largest ghost city filled

At last, a good news story on China. Readers might remember that I posted an article in December showing alarming satellite photos of entire cities laying vacant (see China’s empty cities).

In that article appeared the below photo of Zhengzhou New District, which was supposedly “China’s biggest ghost city, complete with entire blocks of totally empty accommodation”.

Well as it turns out, Zhengzhou New District isn’t that ghostly after all. Wendell Cox, co-author of the Annual Demographia Housing Affordability Survey, is currently touring China to learn more about its housing market. And here is his ‘eyes on the ground’ report from Zhengzhou New District (via New Geography):

Zhengzhou, Henan, China (March 28, 2011): In December, London’s Daily Mail reported that the Zhengzhou New Area was China’s largest “Ghost City.” A visit to the Zhengzhou New Area indicates exactly the opposite. Chinese “Ghost Cities” are large areas of new development that are virtually unoccupied. The most famous example is Ordos, a new and reportedly empty city, built to replace an older city in Inner Mongolia.

Zhenghou is an urban area of approximately 2.5 million population and is the capital of Henan province. The Zhengzhou New Area is located in the northeastern quadrant of Zhengzhou. It is circular in design, with two parallel roads, high-rise condominium buildings on the inner ring and commercial buildings on the outer ring. The interior of the circle includes the Henan Arts Center and a skyscraper that is under construction. A new high speed rail station is under construction to serve the new Guangzhou to Beijing line. The station is to be one of the largest in Asia.

Our visit revealed anything but a Ghost City. Granted, no-one would mistake the traffic for Beijing Third Ring Road volumes, but virtually all of the parking spaces were taken and there was traffic on the streets (Figure 1). That ultimate indicator of Chinese urbanization, the availability of frequent taxicab service was well in evidence. Two of the city’s bus rapid transit lines serve the interior circle road, again indicating a substantial threshold of non-ghost urbanization.

There were people on the sidewalks, though not the numbers typical of an older, more dense section of a Chinese urban area (Figure 2). It was clear from the laundry hanging in glass enclosed patios that many of the condominiums were occupied, though it is to be expected that many would not be, given the Chinese propensity to invest in multiple residential properties (a tendency the central government seeks to curb). Many of the commercial skyscrapers were occupied, and some were still under construction. There are also shopping centers, small stores and fast food restaurants.

Zhengzhou New Area is intended by the developers to become the new central business district for Zhengzhou. There is much more planned than this first phase. Eventually, the Zhengzhou New Area is intended to cover 105 square kilometers (41 square miles), generally further to the northeast. City maps already show the planned street pattern, not unlike 19th century maps of some US cities.

In short, the Zhengzhou New Area is alive and not a Ghost City. It may well be that it took longer than expected for the place to come alive. But it is clear that the life of the Zhengzhou New Area began more than four months ago.

I will post further eyewitness reports from Wendell Cox as they come to hand.

Cheers Leith

unconventionaleconomist@hotmail.com

www.twitter.com/Leithvo

38 Responses to “ “China’s largest ghost city filled”

  1. ak says:

    It is April 1st today innit??

  2. The Lorax says:

    Well that’s it then. If the empty cities and apartments are really being filled, and really being rented, then the Great Chinese Building Boom really was justified.

    The implications are: The resource boom has plenty of time to run, the Aussie dollar is going to keep climbing, the Australian economy will be awash with money that will keep the housing market afloat, and non-resource export sector will shrink dramatically.

  3. JM says:

    Its just the Chinese version of ‘The Truman Show’ starring Wendell Cox

  4. Deus Forex Machina says:

    Thanks UC…I was at a David Hale talk the other day an someone asked him about this exact point and he made exactly the point the Demographia bloke is making. It may have been empty and other places may be but the need and rate of industrialisation continues and the cities fill up.
    Still reckon China will misstep somewhere though they really need to rein in their inflation or maybe I just hope they will so I can buy AUD and Equities cheaper. Dangerous fantasy?

    • The Prince says:

      Hmmm.

      China population growth rate is less than 0.5%

      Fertility rate is less than 1.7 (2.1 is replacement rate)

      only 10-15 million new Chinese added to population each year

      Sure, lots of low income people in the agricultural sector who want to move

      But 64 million apartments (and how many more million under construction) can house over 150 million people….

      • Ben says:

        Population growth may be not adding that much to population, but there is an enormous stock of older housing built in the last 50 years that needs replacing. Some of these new residential areas are massive, and are designed to be bulk replacements for older housing stock, which will in turn be bulldozed and redeveloped.

        Have a look for a phenomenon here called Nail Houses, where one tennant from a area to be redeveloped is hanging on to an old house in a development wasteland.

    • Thanks Deus. Hopefully Wendell will visit some of the other ‘ghost cities’ and confirm whether they are occupied or not.

      • Deus Forex Machina says:

        Terry went to the Melbourne version I’m guessing. He did focus on headwinds TMc doesn’t give you a real feel for the timeframes over which he was talking though. there was a good mix of 2015, 30 and 50 along with the present context.

        Here are my notes (very brief on my Blackberry) from the talk:

        “This years growth expectation globally now 3.5% growth not 4.5% 6 months ago

        Headwinds

        Oil and food inflation globally

        Fiscal Drag – IE austerity in Europe but still to come in the USA

        China slowdown – challenges of moving to inflationary period particularly food but also supply side, labour inputs etc.

        Demand side infltn – raise interest rates and credit constraints to better target the slower economy.

        China Urbanisation – living in cities but lacking infrastructure. Now moving to the next stage where there is more housing and transportation and utility functions.

        Shortage of labour in china! Wage gains of 20% plus in eastern and southern. Makes it difficult for wage growth to lag productivity. Leads to a profit squeeze.

        Chinese Interest rate liberalisation experiment – competitive bidding for bank deposits => higher rates which will impact on borrowing costs and cost of capital leading to a fall in investment as share of gdp and increase consumption leading to lower potential growth rate for the economy

        Profound structural change over 5 years for China

        For Australia: The BHP/RIO thing was noted as a risk to Australia as African Iron Ore coming on line in 2015 is about 2/3 of last years sales

        Key Global Risk – low probability and unforecastable but watch out for oil spike coming from Saudi political uncertainty. But they have plenty of money to buy everyone off”

        These are all my words not his

        Overall I got the idea that he things China will make a cyclical not structural mis-step.

      • The Lorax says:

        OK, there’s nothing new here. Sounds like he buys into the mass urbanisation story, which is true of course, but most evidence suggests the people moving to the cities are not buying or renting the new apartments, not riding the fast trains, and not catching planes from the new airports.

        Did he give any hard numbers? Occupancy rates? Number of new apartments? Total floor space built? This is where I find the China skeptics more convincing because they put numbers to their assertions, like 64 million empty apartments, vacancy rates in new apartments above 50% in Shanghai and Beijing, 30 billion sq. feet of commercial floor space under construction.

        The China boosters arguments usually revolve around:

        - there’s a LOT of people in China
        - they all want to move to the city
        - this is unprecedented
        - there’s a LOT of people in China
        - different rules apply in China because its a command economy
        - China in 2011 is like the US in 1911
        - the Chinese government will stop any crash
        - there’s a LOT of people in China
        - debt levels are much lower in China
        - China has trillions in foreign reserves so a crash is impossible
        - there’s a LOT of people in China

        And on and on it goes.

      • The Lorax says:

        I find the China skeptics more convincing because they put numbers to their assertions

        Case in point:
        http://chovanec.wordpress.com/2011/04/01/chinese-banks-illusory-earnings/

  5. DavidV says:

    Shortage-deniers here in Australia will often find a newly built unit block and crow with delight that most of the units are unsold and not yet lived in.
    The shortage-deniers claim this proves there is an oversupply, and claim a price crash is imminent.
    A few months later the developer manages to sell all of the units at a high price and the claims of the shortage-deniers is proven to be a load of rubbish. They never admit to being wrong and apologise.
    I don’t know what is happening in China, but it is good that someone trustworthy has chosen to follow up the story of the empty cities and has found (in this case) that there is nothing untoward happening.

    • Rusty Penny says:

      Erhh, it’s not a denial of shortage.

      The situation you explained is supply/demand coming into equilibrium, which in itself is suitable.

      The current shortage myth being peddled by spruikers of a shortage is important, because it implies there is a current premium to be paid because of this shortage.

      It is never about property is at a fair price, and you can capture this shortage premium.

      So if the shortage premium is currently structured into the price, it can only remain as long as we have an eternal housing shortage. Otherwise the shortage premium dissipates.

      • DavidV says:

        I’m not sure that there is any one shortage myth that spruikers all believe it.
        Regardless, you make a good point about the shortage premium. The shortage of housing in Sydney is actually a good reason to avoid buying in Sydney if the price has already factored this in. Should government decide to do the decent thing and solve the shortage by more relaxed zoning and better transport infrastructure, then house prices would fall as the “shortage premium” dissipates.

        I believe price in Sydney has factored in the current shortage and more. I expect large price falls anyway, and even larger falls should the shortage be partially fixed.

    • john cage says:

      Sure, developers sell all these units, but many of them are still empty

      There is a huge difference between market shortage and real “consumption” shortage.

      In 2006, all new developments were being sold before they were completed – just 4 years later Florida with almost million more residents, collapsed construction industry has 1.6 million empty homes.

  6. Sceptic says:

    If this is not an April Fool’s joke, then I have only this observation to make: the Chinese are very sensitive to criticisms foreigners make about their economy. If you think they are not aware of the numerous article and TV programs about their “ghost cities”, you are naive in the extreme.

    And China is a command economy, a totalitarian regime. Someone in Beijing can literally snap his fingers and tens of thousands of peons will take up token residence in said ghost towns.

    • So what you are saying is that the Chinese Government has artificially populated China’s largest ghost city in order to give Wendell Cox the impression that it is in fact populated? That’s some conspiracy theory.

      • ak says:

        I think UC concocted this up himself ;)

      • BurbWatcher says:

        Chinese – Asian people in general – are VERY sensitive to “face”, “honour”, “criticism”, etc – and MUCH more than Westerners (esp Aussies stiocs!) appreciate.

        I wouldn’t say that such criticism/skepticism was THE reason, but given the global scope of the criticism, and its longevity, I would suspect that it had a part – just not sure how much to attribute to it.

      • LBS says:

        Leith,

        You make a very good point but are you really going to trust anything from the Chinese govt or better yet anything they report or say. I appreciate that this guy is on the ground there but never judge a book by its cover.

        Cheers,
        LBS

      • LBS says:

        I believe there are so many underlying problems in China that eventually they will come to surface. Then the world will realize that China cant defy economic principles. The govt has a the power to keep a lot of the issues under the radar but sooner or later they will surface.

        Cheers,
        Brandon

  7. Dave From Pakenham says:

    A closer inspection of all the brand new cars including an Audi may hold some clues…it appears Australia’s house to income ratio broadly equals China’s Car to income ratio..

  8. Joseph says:

    The problem isn’t that cities are deserted completely but that they’re under-utilised. There has been huge wastage on unnecessary infrastructure right across the country and sooner of later the Chinese are going to stop buying Aussie resources and start working through their massive stock holdings. Then Australia will be at the sharp end of a global downturn.

    • DavidV says:

      You might be right there, but perhaps not.
      As people become richer they tend to have more and more things that are under-utilised.
      I have some power tools that I rarely use. Some of the drill bits in my set have never drilled anything. My mum also has an empty bedroom in her house and never revs her car above 3000rpm. So much of its power is not utilised. Perhaps this will cause some kind of crash one day?!

    • The Prince says:

      Heard of opportunity cost David?

  9. Paul says:

    What are the ages of the people in the city?
    What is the size of the medical areas?

    As China ages, I expect many older Chinese will occupy these cities. From what I can see, one ghost city has the largest medical area on the globe……

  10. DeanR says:

    My Dad has lived and worked in Asia for the last 23 years. He said that this has always been the way China has done it. He himself has been to many of the cities you have mentioned are actually bustling metropolises, including Zhengzhou. China is rapidly trying to develop the Western Provinces to ensure they stay happy under a unified “China”.

    • DeanR says:

      It should read “He himself has been to many of the cities that you have mentioned. They are actually bustling metropolises, including Zhengzhou”

  11. Rob says:

    Is it just me, but something is a little strange about those photos?

    Maybe we should open a donation drive to send one of our great macrobloggers to China for an accurate diagnoses on the situation, without all the bull.

    • K.C. King says:

      Yes, those photos aren’t typical. They show a bit more activity then is normal. But during the day there is life in the CBD. At night, however, it is so empty you would think Armageddon had happened and someone forgot to tell you.

  12. Devilled Advocate says:

    Hmmmm – if I learnt anything from dealing with China for the last 10 years its this:

    1. Nothing (very little) in China is at it seems
    2. There are no experts on China only varying degrees of ignorance.

    Seeing what I have seen I dont doubt for a second that the Party could move people en masse to fill a city if the whim hit them.

    Have they done it here? Who knows?

    You only have to look back a few decades at massive sleights of hand on an international scale to see that 1 and 2 ring true.

    Hundreds of millions of people have died in massive well documented attempts by the party to “prove” Communism – as a starting point read Hungry Ghosts by Jasper Becker and Mao – A life by Jun Chen.

    All I know is if that China corrects the Australian economy will get blast frozen into oblivion and no amount of government intervention will save it.

    DA

  13. Lance says:

    I live in Zhengzhou and as an investor in both residential and commercial property, I have made it my business to become reasonably informed. Without spending many hours of my valuable time refuting the many many inaccuracies, can I just say that most of the above is ill informed crap. Both the writer of the article and the many people commenting need to stop talking amongst themselves and spend some significant time in China if they want to know what is happening. Doing a multi city tour which includes driving past some buildings isn’t the same thing as meeting real people. Years ago, I despaired at the quality of investment advice in Australia. This article shows I was right.

  14. Francisco says:

    Lance, I was in Zhengzou yestarday to meet a cpmpany and I was impressed by the constructipn going on. You seem to be on the field and I would love to know your opinion about what is going on. Coming from Spain where we had a significant real estate bubble i follow the market with interest.
    Francisco

  15. Herman says:

    Lance, I am from Taiwan and I would like to know your opinion about the real estate situation in Zhengzou. It looks that you are pretty well informed.
    Mingkun

  16. AKBAR ALI says:

    the Ghost city is looking very beautiful and hope in future this city will be very popular. my all wishes with chinese people.

  17. K.C. King says:

    I am an American living in ZhengZhou for two years now. My wife and I live in the Northeast part of ZhengZhou on the edge of the CBD, which you refer to as the new district.

    It is true that during the day you can find people in the parks and on the streets shopping, but go there at night and it’s a different story completely.

    I recently went to a new bar in the CBD and when I left the bar around midnight, I found that it was dead…and I mean dead. No traffic, no people, no lights on in the high-rises and condos, nothing. We walked for fifteen minutes looking for a taxi to take us home. We had to call a friend to hail a taxi and come pick us up. I was shocked, but it seems true: no one lives there. People shop there and eat there and go to the park because they are less overcrowded and nicer then the rest of ZhengZhou. But at midnight on a Saturday there should have been signs of life, and there weren’t.