Another China ghost city filled

Back in April I published an article, China’s largest ghost cities filled, providing an ‘eyes on the ground’ report from Wendell Cox, co-author of the Annual Demographia Housing Affordability Survey, who was touring China at the time. Wendell had provided photographic evidence showing that one of China’s famed ‘ghost cities’, Zhengzhou New District, was in fact a well occupied and fully funtioning city.

Now Wendell is back, this time debunking the below satelite photo recently published in Business Insider showing large tracts of construction to the North East and West of Changsha, Hunan – a city twice the size of Los Angeles – lying vacant:

Here is an extract from Wendell Cox’s article published in New Geography a few days back:

Changsha, Hunan: Changsha is the rapidly growing capital of Hunan province, adding nearly 50 percent to its urban districts between 2000 and 2010 (even greater growth than in the US growth leaders, Las Vegas and Raleigh). The Business Insider article displays a satellite image showing huge areas of construction both to the northeast and to the west of the urban area.

When planning a 2009 trip to China, I chose to visit Changsha because of the extensive construction shown in this very same satellite image. In my continuing satellite image research on urban areas, especially relating to Demographia World Urban Areas, I noted that this appeared to be the most extensive construction in the nation. A number of photographs are included in our Changsha Rental Car Tour, which were taken in September 2009.

On a rainy and quiet Sunday afternoon I took a tour of the northeast construction area and found that much of the construction had been finished. Moreover it was obvious from both the traffic and the open shopping centers and shops that this was anything but a “ghost city” (see photograph, above).

The next day I took a similar trip to the western construction area. As in the northeast, much of the construction was complete and the communities were alive.

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39 Responses to “ “Another China ghost city filled”

  1. The Lorax says:

    So what’s your opinion Leith? Is China overbuilding or not?

    One day we get SocGen on China’s construction bubble, and few days later we hear that all the ghost cities are being filled.

    Confused.

    • Yes I am confused as the info/data is conflicting. Having never been to China, I am relying on third party info. I’ll keep reporting it as it comes to hand irrespective of whether it fits into the bubble meme or not.

      • Mayor Quimby says:

        Also there is “going to China” and “going to China”, i.e. as a tourist you see glittery buildings and conclude things MUST be great. You would have seen glittery buildings in Dubai prior to its problems. Glitter does not equate to solid financials.

        Having said that, even the opinions from those who seems to have data looks conflicting. Presumably downturns in steel and cement production will be the indicators to look for.

      • energywonk says:

        right on quimby. and dont forget electricity consumption (and therefore iron ore and coal use) which is now almost 1.0 correlation with aussie dollar. definately the indicators to watch.

      • pellicle says:

        perhaps it would do better to get facts before shooting off an opinion to only then contradict it. You’ll start to degrade the worth of your convictions if you keep it up.

      • I have received many criticisms in my time, but few as ridiculous as yours Pellicle. What would you rather, a commentator that shares facts as they come to hand, irrespective of whether it contradicts prior reports, or someone that only reports one side of the argument? Personally, I’d rather do the honourable thing and share it all – good, bad or indifferent.

      • JJ says:

        Sorry Pellicle, I can’t agree with you.

        It takes brass balls to change your mind when you get new info… that’s the essence of a rational investor. Anything else and you’re driven more by ego or emotions and sooner or later you’re road-kill.

        Keep up the good work UE.

  2. flawse says:

    I’ve been going to China regularly for almost 30 years and it has always defied perception and logic!!!! It’s surreal.

  3. The_Mainlander says:

    This is an existing city with population, a drop in hte bcuket compared top the rest of the developments in China proper.

  4. flawse says:

    And they make you feel tired just watching them!!!

  5. The Nod says:

    IMO there’s nothing here indicating that the newly constructed area is occupied.

    Many photos are of the populated original ‘older area’.

  6. Stavros says:

    I agree with the Nod. Nothing here proves China isnt overbuilding..which is what the Ghost Cities story is all about

  7. Deenominator says:

    I’m no china expert but I think too much is made of the ‘overbuilding’.

    Sure there’ll be some waste along the way, and some losses but good quality developments are going to get filled.

    Their bigger problem is social unrest, making sure that they don’t leave the western provinces behind while the eastern seaboard gets rich.

    Not saying its all happy days but I don’t think they’re massively overbuilt.

    • MontagueCapulet says:

      “Good quality developments are going to get filled”

      Will this still be true when they have enough empty apartments to house 400 million people? Because at the current rate of building that will happen by 2014.

      30 million apartments were built in 2010.There are supposedly 64 million empty apartments already. At that rate there will be 150 million empty apartments 3 years from now, which could house 450 million people.

      We’re not just talking overbuilding, we are talking about 1.8 billion sqm of overbuilding per year.

      How can you not consider 30 million apartments per year overbuilding?

  8. Shay says:

    Seems like an existing city that was upgraded to me? Far cry from building a city like Ordos and waiting for people to relocate

  9. Cashman says:

    It’s china. If they build cities in the middle of what we consider as nowhere, they will find a way of ‘filling’ them. The Property owners in china I know don’t rent their portfolio out. They are just waiting to be millionaires I guess.

  10. Phil H says:

    These are just anecdotes and single data points; I don’t think you draw any conclusions from them.

    We’re also talking about a command economy, which means there’s scope for all manner of shenanigans. For example, an empty city can be filled by government fiat; doing so might might leave many thousands of empty dwellings scattered across the country, but they won’t be visible. The “ghost city” is still there, but now it’s spread across the country.

    However, all this does highlight the opacity of the Chinese economy. What’s really going on? We don’t know. The government supplies some figures, but their reliability is questionable. The stuff you really want to know – the stuff that markets need to set accurate prices – isn’t available. Hence there’s speculation about things like overbuilding and hidden stockpiles of iron ore.

  11. Sean says:

    Phil has a really good point that’s always personally troubled me: China isn’t actually a capitalist economy but people in the West seem to think it is. It’s some kind of a weird command economy mixed with elements of capitalism; witness that many of the top companies on the sharemarket in China are Government majority-owned.

    It’s a huge market hazard because people in genuine private enterprise often have to compete against some quasi-government company that could use their power to shut everyone else down overnight… your family’s position in the party also helps.

    Hence there are lots of people using the Party as a power-base from which to get rich by siphoning off as much money as their relative level of authority permits. You also have a bizzare situation where real economic indicators are hard to gauge because the government success story is the only line allowed to be told in the media there… so who knows what’s actually going on.

  12. Ronin8317 says:

    Like Australia, the Chinese population is heavily concentrated toward the coast because the inner west don’t have sufficient rainfall. When you travel through China, you’ll notice that almost every single parcel of land is used, and the amount of people is simply hard to describe in words. The demand for housing is simply immense. Whether the general population can afford to buy them is another matter.

    One good example is Ordos. The government planned a grand new city closer to the river, however ‘ordinary people’ simply cannot afford to live there. All the apartment blocks are bought by the ultra rich, and they simply leave them empty. A few Chinese reporters have investigated the ‘ghost city’ : nearly every single apartment have been bought with CASH. It’s an insane situation where the ordinary workers can’t afford a house (mortgages requires 50% deposit), while the super rich buys up an entire block and leave it to rot. This cannot be good for social stability.

  13. The Nod says:

    I have a theory:

    China needs to keep its current population employed to avoid revolution- hence the national building incentives.

    China’s population is declining and at the same time they are urbanising – so in the future the numbers left to plant the fields will have declined.

    A centralised and urbanised population is easier to control coupled with a command economy and a regulated food supply. Maybe then we’ll see the velvet glove remove itself from its iron fist.

    With a government that plays its cards so close to its chest and with a history of disinfo and brutality (Mao slaughtering 60-80 million citizens) maybe they are forward planning for a future economic shock?

    So I wouldn’t want to be investing in these projects as there is a strong likely of getting burnt!

    • Ronin8317 says:

      China’s population is not declining yet, although it is rapidly aging. The problem facing Chinese agriculture will not be the lack of manual labour. Rather, it’ll be pollution, soil erosion, and water.

      • The Nod says:

        Cheers Ronin8317.

        You are correct. I should’ve added – “China’s (future) population is declining…”

        In relation to agriculture, the point I was trying to make is the shift away from agrarian to urban is effectively placing the supply of food in lesser hands. The individual has lost the means and skill to feed itself, and as such, has become reliant on the supply chain. If there is ever a disruption through natural disasters etc. then the individual becomes reliant on a controlled (rationing) system for survival. I see that layer as a ‘possible’ control mechanism.

        This is also true for our western society with its just-in-time inventory system that operates on 3 days worth of storage at the local level instead of the 90 days (for non-perishables) as in the past.

        I agree about pollution and erosion.

        Did you know that after 4 days without food over 90% of the population would steal for its survival, and after 10 days they will kill?

        Let’s hope we don’t cop a major disruption.:-)

  14. PhilBest says:

    Really great comments on this thread. Yes, China’s economy is an unhealthy mix of “command” and “capitalism”. The local governments, bureaucrats, and “capitalists” are abusing the process of development to make “planning gains”, with the result that the finished product of the housing development is unaffordable to the most people who actually need it.

    What China needs, is genuine “free enterprise”; certain cities in the USA are now just about the only examples left in the world of genuine “free enterprise” in action in housing and property development. This results in genuine affordability of housing, low living costs, high social mobility, and economic competitiveness.

    We need a lot more analyses of THIS type:

    http://www.houston.org/economic-development/joel-kotkin/pdf/KotkinAppendices%20Policy%20Framework%20with%20table.pdf

    The table on page 5, “Discretionary Income”, is a very good guide to which cities of the USA OWN the economic future for the USA and possibly civilisation itself. China and India and any other nations that simply cannot get genuine “free enterprise” solutions happening in property development, will hit a glass ceiling re progress out of the third world and into the first.

  15. PhilBest says:

    “Property” played the central role in the “Asian Crisis” of the 1990′s, especially in Korea and Japan. Has no-one LEARNED anything?

  16. PFH007 says:

    Something else about China that is worth noting.

    We should not make the mistake of assuming that because high speed economic growth rate correlates with authoritarian government by the CCP in Beijing that the central government is either the cause of that growth or has much control over what is going on.

    Although Beijing is the centre of CCP power and works hard to impose its will and policies on the country they are not always very successful. The increasing paranoia of the last 12 months tends to confirm there is something worrying them in a big way.

    The local CCP authorities have a lot of power (courts, police, admin, enterprise) to do what they want providing they keep their heads down and pay lip service to what Beijing wants.

    Trying to ensure sensible lending/borrowing and development decisions at the local level is very difficult for Beijing.

    While building big infrastructure is manageable, getting all the small stuff right that stops the public burning down the local police station and party offices is another thing.

    This book by Richard McGregor is an interesting account of the challenges facing the CCP to maintain ‘control’ over the free-wheeling and upwardly mobile local party officials and enterprises.

    Certainly the party has fingers in every pie but the interests of the local party and the local members may not be quite the same as the interests of the party big wigs in Beijing.

    China has, despite the best efforts of the CCP, probably more in common with boom and bust 19th century USA than a command economy.

    Trying to pick the black swan that bites you when there are flocks of the critters wheeling overhead is the hard part.

    http://www.harpercollins.com/books/The-Party-Richard-Mcgregor/?isbn=9780061998089

  17. Loren says:

    PhilBest, Yes, China’s economy is an unhealthy mix of “command” and “capitalism”. The local governments, bureaucrats, and “capitalists” are abusing the process of development to make “planning gains”, with the result that the finished product of the housing development is unaffordable to the most people who actually need it. But is that worse than USA economy with all its crashes and inefficiencies of the “free market”? This is the question. The one is growing exponentially, the other is still licking its GFC wounds. The final outcome for both will be the same.

  18. Devilled Advocate says:

    All very valid points – my experience in dealing with China can be summed up as follows:

    1. In China nothing (very little anyway) is at is seems
    2. There are no experts on China, only varying degrees of ignorance.

    I have a lot of Chinese born friends who cant explain some Chinese shennaningans so its virtually impossible from a Western prism.

    Either way its going to be interesting and one way or another as Napoleon purportedly said (China) will shake the world.

    My pegged RMB0.02.

    DA

  19. Peter Fraser says:

    I take my hat off to you Leith for your honest approach to information regardless of the message within.

  20. With respect to Governments, I take the position that if its no news, its bad news. 100% success rate on that score to date!

    China is the Mother of all Bubbles.

    In visiting it back in March and looking at it as a developer, its clear to me that its a bureaucratic “make the numbers” economic circus. Nothing seems to “stack”.

  21. Al says:

    But can you have a bubble if all of this government spending is financed with cash and it is not really a market economy. China is not going into debt to sponsor all of this economic activity. Yes, it is a waste to build housing and infrastructure that might never get used. As there is no debt raised for construction, these apartment buildings don’t ever need to go on the market to be sold. It is like building pyramids in 21st century, while bizarre, they can afford it.

  22. Sceptic says:

    This article on China’s miraculously filling ghost cities does not pass the smell test. I can think of many ways it could be manufactured, especially as it comes from the pen of Cox, a right winger and lobbyist for automobile-based industries. The last thing Cox and his running dog imperio-capitalist friends want is a collapse of the milch cow du jour, China.

    • Skeptic – your comments are childish. Bad manners and ignorance go hand in hand of course. And gutlessness too – in not using your own name when slurring others.

      The reality is that Wendell Cox has spent much time in China over the years researching and reporting on it – and his perspectives require serious consideration.

      As the co author of the Annual Demographia Housing Survey with Wendell Cox, I happen to disagree with his perspective of market conditions there, as you will note within my comment above.

      • I second Hugh and I thank him for bringing this disgraceful comment to my attention (via the comments feed).

        When I decided to examine the supply-side of the housing market last year, I contacted both Hugh and Wendell for papers, research, etc and have asked them many questions about the supply-side over the past 6 months. Both Hugh and Wendell have been extremely approachable and helpful, and have assisted me greatly in my research.

        I find it curious, Skeptic, that you would bag a guy that has devoted considerable personal time arguing for more affordable housing (how dare he!), as well as informing the populace of just how overvalued the Australian housing market is compared to other countries.

        The Demographia surveys are the gold standard – without these vital surveys most Australians would be completely in the dark about the extent of Australia’s crazy house prices.

  23. LBS says:

    Leith I dont buy it. Just like all these Chinese companies and their accounting practices proving to be a big crock of S$%T. All these US agencies are not investigating them and other countries around the world. For those all cheering China on here do you really think China is the be all and most admired economy in the world. They are about to be in the same mess as everyone else.

  24. LBS says:

    “All these US agencies are not”

    All these US agencies are now

  25. Microtrader says:

    Please keep up these great posts to continually challenge existing thoughts / assumptions.

    Posts and comments like these are why I come back to macrobusiness every day.