China’s most famous ghost city busts

China 7

By Leith van Onselen

Ordos in inner Mongolia has regularly been cited as the quintessential example of China’s unsustainable construction-led economy.

In 2009, AlJazeera posted an explosive video showcasing Ordos’ ghost apartments and frenetic pace of construction, which exemplified the “build it and they will come” approach that has underpinned the Chinese economy. AlJazeera provided a follow-up in 2011, which was equally revealing.

Then Business Insider posted a slideshow of China’s empty cities, headlined by Ordos.

And in late 2011, a video from NTD Television showed how Ordos’ home prices were crashing, having fallen by almost one-third. Meanwhile, construction had finally ground to a halt, leaving many construction workers unemployed.

Then last year, a video from the Atlantic  followed a group of skaters through Ordos, showing a city that appeared almost completely empty three years after Aljazeera’s first ground-breaking report.

Now it appears the city has gone bust. According to Bloomberg, apartment sales have ground to a halt and a myriad of cranes now stand silent amid half finished developments:

“In the past few years there was a lot of coal so people came from all over the country,” says Gao Wei, 30, smoking in an office that deals in second-hand construction machinery and had no clients that day. “Now the economy has collapsed, they’ve all gone”…

Fueled by a boom in coal production, Ordos saw a building spree in recent years, with an expanded airport, a sports stadium and the new area of Kangbashi where high-rise apartments surround an artificial lake. Many local residents owned two to three homes each…

Now the local government’s revenue is falling because the property crash has scuppered land sales, while residents no longer have compensation to buy property and make loans… About 70 percent of Dongsheng district’s real estate market was funded by private lending that has now stopped…

When the government sold land over the past few years, it always used the funds for infrastructure construction, Zhang said from the sales office of a new apartment complex with 1,000 units. “Now they don’t have any money.” Meantime, the city’s coal rush has dried up amid sluggish domestic demand, with prices dropping to an almost four-year low.

That hasn’t stopped efforts to keep the boom going…

Some Ordos district governments had to borrow money from companies to pay municipal employees’ salaries…

“Ordos is a warning to other places in terms of how to guide the local economy and in what not to do,” said Yao Wei, China economist at Societe Generale SA in Hong Kong. “The local governments are still not waking up to what they should do in this new environment”…

Consider for a moment how much of Australia’s iron ore and coking coal has gone into the construction of such projects, and what will happen to commodity prices when construction across China inevitably slows.

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Unconventional Economist

Comments

    • The wing nut echo chamber (3d1k and GSM) were spruiking this the other day but I missed the original comment. MineBot, do you have details about your cluster cities project?

      Oh, and for all our amusement, please describe how building yet more cities assists in the rebalancing of the Chinese economy.

      • Rebalancing?

        It is simple engineering and geology. Due to past large construction projects along the coastal provinces China is tilting towards the sea. By building clusters of new cities inland using vast quantities of heavy commodities the tilt can be reduced.

        While ghost cities may seem strange think of them like a bag of cement on the end of a see saw when you are in the park and have no friends.

        The reduced tilt will also mean the rivers will run more slowly and thus allow more water for irrigation projects.

        Does that help?

      • Lorax,
        You need to seek help, really. You constantly see things that are never there.

        I have no ability to influence anything in China. Whether it is good or bad, I have no influence. I have therefore no interest nor do I spruik anything about China. My interest is simply trying to understand what they are doing , what they are likely to do and why. I don’t judge what is right or wrong. It’s their country after all.

    • Settle dudes. Don’t fret. Ordos has been constructed so any decline in financial position to have little bearing on Australian commodities.

      Hopefully what will have a bearing for some time to come is the continuation of the Urbanisation project via development of more cluster cities. NDRC recently announced approval for ten more (and others in the pipeline).

      These cities are in a sense satellite cities to major mega-cities and will be interconnected via road rail and subway systems. Many are expected to have specific industry focus acting as magnets of specialisation and will be constructed to ensure adherence to Beautiful China ethos in regard to urban planning and environment.

      http://www.chinascopefinancial.com/en/news/post/27110.html

      • will be constructed to ensure adherence to Beautiful China ethos in regard to urban planning and environment.

        Did you quote that directly from a Communist Party document?

      • I’ll reduce what you are trying to say 3d1k by taking out the spin…….

        A huge monumental waste of money that is already shown to be a complete and utter failure, but if we persist with the dream eventually people will catch on and the stampede will be on in full force…….

        I will retain my sceptical view until such times happen…..zzzzzzzzzz

      • I have only one question, how will people afford to live there? Do the developers take a haircut and offer low rent?

      • No, 3d1K.

        If you read the article, Ordos has not “finished construction”. It has CEASED construction. Unexpectedly.

        I quote: “a myriad of cranes now stand silent amid half finished developments”.

        Which means projected commodity demand will not be fulfilled.

        It also might mean that other parts of China will learn the lesson and cut back on these enormous white-elephant projects.

        Hence reducing demand for Aus commodities.

      • dumb_non_economist

        2d,

        Has your alleged trolling income fallen so much you’ve taken up part-time work writing press releases for China. If so why not speak to Tone, he’s in need of someone of your ability, shit, he’s in need of anyone full stop!

      • “Trust me Arrow the impact is so negligible as to be non-existent”

        Trust is earnt 3d1k

        You have a long way to go yet.

  1. Cognitive Dissonance

    Mad Max 2100

    Starring Robert Downey Jr as Mad Max
    And
    Fifi Box as Fe Fe Box (the love interest)

  2. If Abbott gets in maybe we’ll start doing it here? In Dubbo and the like.

    That’s the only economic strategy the main stream polis have, “grow and hope”. Geniuses.

    On the positive side I’d probably rather live in one of those cities than Sydney. At least you could probably get to work in under an hour. They look well planned and functional.

    • Yes – but in the Kimberley, rather than Dubbo.

      Agree that living in Ordos does sound comfortable.

      Better yet, once you get to work, you won’t have much to do, like the construction sales guy in the article.

      Sweeet.

    • On the positive side I’d probably rather live in one of those cities than Sydney. At least you could probably get to work in under an hour. They look well planned and functional.

      Also taxis are ridiculously cheap. But the pollution gets to you, trust me. When I got back from only a short stint (1/2 year) it took me weeks to cough out all the shit that had accumulated in my lungs.

  3. Does anyone know what these apartments are selling for and renting for in $AU, as well as the strata (if it exists?).

    It would be good to know if these apartments cost AU$150,000 which are rented for $100 a week with strata costing $40 a week.

    Putting it in these terms would seriously help explain the issue to the average Joe.

    • thomickersMEMBER

      From what I understand:

      the boxes cost about US$150k-$200k without interior (shell only). There is minimal strata cost (in most cases none) so you can expect the depreciation schedule of the stock to be significantly quicker than in Australia.

      the typical salary of old Ordos is around $4-$10kpa

    • Rent??? What rent ??? Chinese like to keep their IPs in brand new condition – hence the apartments are kept empty

      (Third world problems of great inequity)

  4. I was going to say stop re dredging this old story up. However, at least this update is useful in determining the path for this place.

    It appears it has failed and no one came.

    Not sure if i feel sorry for the mum and dad investors that own 2 or 3 apartments that are now worth nothing.

    Does anyone know which particular economic driver was supposed to drive this town?
    was it only coal?

    • Greater in built obsolescence and failure rates into products. I’ve had to buy 3 Logitech mouses in the last year.

  5. Crocodile Chuck

    As I recall, there is an Ordos city nearby, with a viable economy.

    The CHI gov’t decided that it would be a better idea to build a brand spankin’ new city than attempt to improve the existing one.

    Looks like the credit sources dried up. See Michael Pettis’ latest newsletter.

  6. Not sure it addressed the speculation issue, but seeing as the property is now worth almost nothing it certainly appears to have improved housing affordability.

    • I dont think so, this will definitely not be affordable at any price.

      When you’re purchasing a liability it is very difficult to make money regardless of how long you hold on to it. The local gov’t must fix this problem so they will fix this problem, that means land / building taxes of some sort.

      You might buy the apartment for half the construction cost but good luck selling it when there is some encumbrance introduced that means the owner must pay $10K per year to support the local govt.

      BTW most of these apartments are just a shell, they have no bathtubs, sinks, kitchens……, it will cost you at least $10KUSD to get the apartment into a rent-able state. There are also typically no “strata fees” which is great until you realize that this means no services either. Nobody to mow the grass, fix the lights……AND nobody to share the compounds costs with, the other owners simply dont care (they’re not renting) so good luck getting them to contribute to operating costs.

      • Wow, Bob!

        Brings new meaning to the old saying:

        “A courtyard common to all will be swept by none”

  7. UE: I took away the thread because this is not an article where Australian urban planning issues should be discussed. It is about China. Please keep comments on point

    The Boss: Roger That!