Folks flee the ghost city

Remember Ordos, the ghost city?

Thanks to its coal, the place was “booming” (sort of).  Not only was it a bizarre place with a real estate “bubble” (actually, I can’t quite want to find a word to describe something which is more than a bubble) even though the place is seriously over-housed, it was also a hot place for underground lending practices that we have discussed here every now and then.

But this city is dying.  For a city which is clearly too large to accommodate its people, it is curious to see the headline on Sina that migrants are leaving Ordos.  After the underground lending bust in Ordos, a lot of people involved in underground lending have gone bust.  As the economy cools, together with the death of underground credit, the real estate market has died and constructions have halted everywhere, forcing people to leave.

In the busiest area of the city, Dongsheng district, 300 thousand migrant workers that used to be living and working in Ordos have disappeared after the bust as they can no longer earn the money they used to.  The impact of a cooling economy goes beyond that.  Services industries like restaurants are feeling the pain as their customers seem to have all disappeared.

There are some who are more optimistic, because “we still have coal”.

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  1. That has to be a good thing for the average worker that want to buy a house, provided they can get a job in the mines. They might have to start advertising the properties in Aus I hear property speculators are very interested in mining towns at the moment.

    • When I was in Perth recently there were a lot of locals talking about how nobody will touch property in mining towns with a barge-pole (Port Hedland and Karratha were mentioned) despite the fact that you can currently rent out a three-bedroom house for two grand a week. The reason is that they are all well aware of the boom/bust cycle in Western Australia – a lot of locals are convinced that the iron ore boom will fall over any day now and they don’t want stranded assets in those towns.

  2. Ordos is a superb example of a planning failure – I’m not convinced that it symbolises anything else though.

    It should be kept in context with the scale of China. It is probably about equal to a few unnecessary school auditoriums in Australia – and we have a few of those.

      • Well do you think they built a city in the wrong place through clever planning?

        Clearly all of those investors will lose money. That doesn’t matter much to China itself.

        The context that matters is that the planners build new cities like we add small subdivisions.

        For the most part they get it right, but occasionally they err. It’s hardly a problem unique to China, it’s just the scale that blows us away. Any nation that erects 30 story buildings in 15 days is out of the league that we play in, so we find it hard to come to terms with.

        • There is obviously a need for a township as the area is a mining town. If private sector wants to invest and pay local government to buy development land, the government is hardly going to say no. Who would say no to free money with little risk to oneself? It’s the private sector who decided to develope a viable town into an unviable city.

    • It is not a planning failure as much as private mal-investment. Local governments build ghost cities as a means of raising revenue, by selling land to developers. Developers then do what they do best, develop the land and sell the ghost developments to investors. Why do private investors keep buying these apartments for which there is no primary need ( I.e. provide shelter) and then keep them empty – I have noooo effing idea – something in their genes or in the air they breathe.

  3. TP: edit – please dont mention turfing/troll sites Aristo

    This has nothing at all to do with planning – it’s not a planning failure, otherwise this wouldn’t be occurring all over China. Its a consequence of a speculative bubble – anyone can see that. Attempting to skirt the reality of the source only highlights your shortcomings on issues outside your area of expertise.

    The Hukou system in China prevents the migratory peasants from purchasing into the big cities, even if they have the money and were allowed to buy these properties their lives would be disastrous as they would be blocked from many services. Whats more these apartments FAR, FAR outstrip the affordability of most Chinese, when I hear commentators talk of the millions upon millions of chinese who need a home two things spark my mind – where are they living now (in caves and tents ?) and how are they going to pay for these things ? If prices come down to meet the levels of affordability required then we would see one of the biggest collapses in history.

    It is not a planning failure Peter, this is not a centrally planned issue. This is not even a regional governance issue – this is rampant uncontrolled speculation in an unsustainable realestate bubble slowly unraveling.

    • Correct. Planning has very little to do with it, other than that local govts are also part of the speculation racket.

      The simple fact is that millions of Chinese who do have money have invested it in real estate in the belief that an economic miracle will lift hundreds of millions of ordinary Chinese out of poverty and give them the funds to pay off the investors.

      This is simply not going to happen as the prices are way way out of reach. They are all going to get hosed.

    • Aristo – ok then, is your point that there is zero planning put into where cities are located?

      Their intention is to build 20 cities every year. Will they all have zero planning as well with no input from the central government.

      They create another economy the size of Greece every 11 weeks.

      And finally regardless of whether there is planning or not, would you expect every one to be 100% successful?

      Or put another way is every city a failure?

      • Peter there are at least two “theys” here and they are often working at odds – they1 is Central Govt, they2 is the local govt.

        Local govts have a huge degree of autonomy and their main goal is to stimulate GDP so they look good and gain influence. That means building shit whether its viable or not.

        Central govt has very little control over all this and is just trying to prevent the whole thing from falling into a massive hole.

      • That is correct Peter, there are empty apartments ALL OVER CHINA, sorry to say thats the reality of it.

        The government also builds as part of its communist heritage, which are quickly filled as they are subsidized and cheap.

        IN major capital cities yes the apartments are often occupies, however I have lost count of the number of videos I have watched where even in major cities dozens, yes DOZENS of buildings lie empty, before we even start talking about non major centers.

        Whats more, your entire contention is that the reason this city and all the other buildings lie empty is that it is a planning failure as opposed to a consequence of speculation – Ordos was a massive regional center, it was not a small place. There were thousands of people working there – they were never able to buy into these apartments, they lost their land for this speculation, and now that the economy is tanking they are leaving.

        That is a speculative bubble.

        You are thinking that the central government is going around saying “build a city here, build a city there…” – I really don’t think you have a clue about China.