The myth of China’s ghost cities

April 22, 2015
thamesvillage

Thames Town, near Shanghai, China. REUTERS/Courtesy of Wade Shepard

Ghost towns tend to start as boomtowns, and contemporary China more than likely has more boomtowns than any other country in history. No economy has ever risen so rapidly and no place has ever built so much so quickly. This rapid growth has resulted in peculiar side effect: ghost cities, everywhere.

Although the term “ghost town” is technically a misnomer in this case. A ghost town is a place that has become economically defunct — in other words, a place that has died. What China has is the opposite of ghost towns: It has new cities that have yet to come to life.

There are nearly 600 more cities in China now than there were when the Communist Party took over in 1949. This large-scale urban transition began in the early 1980s, when rural areas began being rezoned as urban en masse and the city took center stage in China’s plans for the future. In the early 2000s this urbanization movement was kicked into high gear. New urban developments began popping up seemingly everywhere — along the outskirts of existing cities as well as in the previously undeveloped expanses between them. Many cities doubled or even tripled their size within relatively short spans of time. In just 15 years Shanghai alone grew sevenfold and its population increased to more than 23 million from 6.61 million.

italiantown

Pujiang’s Italian-style New Town, near Shanghai. REUTERS/Courtesy of Wade Shepard

China’s broader urbanization movement shouldn’t be thought of as a developmental free-for-all. There is a method behind all of this building and an overarching framework. Ten massive new urban conglomerations called mega-regions have been proposed in strategic locations across the country. These are essentially city clusters of 22 million to more than 100 million people each that are to be connected through infrastructure, economically, and, potentially, even politically.

China’s fiscal policy all but requires local municipalities to comply with this broader urbanization plan. According to the World Bank, local municipalities must fend for 80 percent of their expenses while only receiving 40 percent of the country’s tax revenue. Land sales make up much of the difference, resulting in a buy low, sell high scheme, as municipalities buy up cheap rural land, re-designate it as urban, and then resell it at the high urban construction land rate — pocketing the difference. According to China’s Ministry of Finance, land sales raised $438 billion for China’s local governments in 2012 alone.

When developers purchase these new plots of land, they are prohibited by law from sitting on them. They must build something. While it is commonly thought that getting in on a new development zone early is key to making a big profit, these areas tend to lie far outside the bounds of mature, built-up urban areas. This often means constructing vast apartment complexes, giant malls and commercial streets in places that do not yet have much of a population base to support them.

Building a new city from the ground up is a long-term initiative, a process that China estimates takes roughly 17 to 23 years. By 2020, Ordos Kangbashi plans to have 300,000 people, Nanhui expects to attract 800,000 residents and 5 million people are slated to live in Zhengdong New District. China’s new cities are just that: new.

newsouthchinamall

The South China Mall, in Guangdong province, is the largest in the world, but it’s mostly empty. REUTERS/Courtesy of Wade Shepard

There is hardly a single new urban development in the country that has yet gone over its estimated time line for completion and vitalization, so any ghost city labeling at this point is premature: Most are still works in progress. But while building the core areas of new cities is something that China does with incredible haste, actually populating them is a lengthy endeavor.

When large numbers of people move into a new area, they need to be provided for; they need public services like healthcare and education. Therefore, a population carries a price tag and there is often an extended period of time between when cities appear completed and when they are actually prepared to sustain a full-scale population. This could be called the “ghost city” phase.

Most large new urban developments in China eventually move through this phase and become vitalized with businesses and a population. Essential infrastructure gets built, shopping malls open, and places where residents can work are created. In many of the biggest new cities, new university campuses will emerge and government offices and the headquarters of banks and state owned enterprises will be shipped in, essentially seeding these fresh outposts of progress with thousands of new consumers. From here, more businesses are attracted — often drawn by favorable subsidies like free rent — and more people trickle in as the city comes to life.

Some of China’s most notorious ghost cities saw phenomenal population growth in recent years, according to a report by Standard Chartered. In just a two year period from 2012 to 2014, Zhengdong New District’s occupancy rate rose doubled, while Dantu’s quadrupled and Changzhou’s Wujin district increased to 50 percent from 20 percent. Though there is still an excess of vacancies in these places, when urban areas of high-density housing are even half full there’s still a large number of people living there — more than enough for the place to socially and economically function as a city.

It generally takes at least a decade for China’s new urban developments to start breaking the inertia of stagnation. But once they do, they tend to keep growing, eventually blending in with the broader urban landscape and losing their “ghost city” label.

13 comments

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What this blog post doesn’t say is the effect of capital and interest rate on property development.
Previously, the construction industry has been fueled by low interest rate and huge untouched saving from the population. People were buying lots from constructors before construction even started. But saving is being used up, and interest rate cannot be kept low forever. Keeping towns unoccupied for years is fiscally unsustainable.

Posted by hereiam2005 | Report as abusive

Chinese can do whatever they want with their country.

Posted by BadChicken | Report as abusive

The high level problem with authoritarian countries like China is that their “big” people think that they can outsmart the Nature. For some time – maybe.

Posted by UauS | Report as abusive

Maybe if the chinese are forcibly moving millions of people into these cities they have a chance. It’s pretty simple economics to say that no centrally-imposed top down development plan will ever meet the needs of a region or its individuals as well as organic growth in response to demand.

It’s a farce to say that its too soon to judge because the Chinese give themselves 20 years to meet their goals. Either the development will wildly miss what the region requires in any number of a dozen different ways, or people will be forced/coerced into living in these cities against their will so that the development will otherwise appear to hit the projection. Either way is a huge loser for China and the world’s real economy, where resources and people should move freely to be put to their most productive uses. I would encourage Reuters to employ more economic journalists and few ehtnographic journalists, whatever the hell that is, when discussing matters of political economy.

Posted by EndlessIke | Report as abusive

Maybe if the chinese are forcibly moving millions of people into these cities they have a chance. It’s pretty simple economics to say that no centrally-imposed top down development plan will ever meet the needs of a region or its individuals as well as organic growth in response to demand.

It’s a farce to say that its too soon to judge because the Chinese give themselves 20 years to meet their goals. Either the development will wildly miss what the region requires in any number of a dozen different ways, or people will be forced/coerced into living in these cities against their will so that the development will otherwise appear to hit the projection. Either way is a huge loser for China and the world’s real economy, where resources and people should move freely to be put to their most productive uses. I would encourage Reuters to employ more economic journalists and few ethnographic journalists, whatever the hell that is, when discussing matters of political economy.

Posted by EndlessIke | Report as abusive

I’m sure there’s millions of residents of the free-trade burnt-out US rust-belt that would love to move to these new cities in China.

Posted by Thingumbob | Report as abusive

Why bother to call these blogs “Great Debates” when the author can prevent anything he or she choses and steer the argument to flatter his own dubious, and quite possible sponsored, point of view?

Posted by paintcan | Report as abusive

Nice job – that last post went in – what happened to the post I really wanted to enter?

Posted by paintcan | Report as abusive

Building cities for a million people with only a few thousand actually living there, out in the middle of nowhere, seizing land from farmers thrown into poverty while fleecing investors – all based on the utopian assumption that China will keep growing and developing until they look like the world of Star Trek.

Communists believe that they can will their beliefs into existence, a trait shared with Wall Street free market capitalists. Communism is famous for building useless, gargantuan monuments to group-think failure. Success grows organically or not at all. Its certainly not possible for corrupt government hacks and real estate hustlers to build the world of tomorrow. We’re looking at the biggest real estate bubble of all time.

Posted by Vinagaroon | Report as abusive

Now that the command and control, communist bubble has broken, I’m sure that the author is busy researching his mea culpa article.

After all, as others have posted here, nature (free markets) doesn’t build on a monumental whim and a prayer. (If communists prayed, that is.) After all, with their “one child policy”, from where did the communists think the denizens of these Potemkin cities would come? India?

So the communist Chinese real estate bubble (what’s a good word for a mammoth, inconceivably LARGE bubble?) bursts while holding trillions of U.S. debt. While Urkel Mugabe is frantically “fundamentally transforms” Western Civilization. And de Blasio here in NYC is similarly busily restoring the squeegee men-Times Square hooker-Central Park mugger-2,400 murders a year world from our pre-Giuliani days.

Maybe all the devastated Chinese who lose their shirts in the real estate bust and their jobs can come and live in Gracie Mansion? I’m sure Chirlane is making their room up as we speak.

Posted by KewGardensMale | Report as abusive

How about…letting the Syrian refugees live there?

Posted by Kapico | Report as abusive

An increase of 50% means nothing when you’re going from 10,000 to 15,000 people in an area built for 200,000. On top of which almost no one can afford the living spaces. Those apartment buildings were paid for by the swindled poor, who will never see a dime in return. China’s economy will collapse the second our Fed’s policy is shown to be short-sighted. The difference between North Korea’s ghost towns and China’s is that in China the elevators actually exist.

Posted by Ditch_Hart | Report as abusive

>In just a two year period from 2012 to 2014,
>Zhengdong New District’s occupancy rate rose
>doubled, while Dantu’s quadrupled

And what are these in absolute numbers, and what they were originally? A 4 times increase of occupacny in a city with 0.2% occupancy rate only mean that the occupancy is still sub 1%

>Changzhou’s Wujin district increased to 50
>percent from 20 percent.

Why to bundle a suburb of a major city with ghost towns build in the open field?

Your omission of that information seem to be rather deliberate

Posted by baybal | Report as abusive