by Liao Longtai, Department of Architecture, XJTLU

This essay is a review of Ghost Cities of China: The Story of Cities without People in the World’s Most Populated Country written by the China-based American journalist, Wade Shepard. The book’s author demonstrates the current condition of Chinese Ghost Cities and states that they are only a snapshot of a specific moment where newly emerging cities have not yet been filled with inhabitants.

 

ghost_bookThis is a point worth making. However, in my opinion, China does have true Ghost Cities. Ordos in Inner Mongolia is the city that has designed and built lots of houses and it is the place where nobody will move in the end. These surplus houses are a result of a real estate bubble that happened between 2005 and 2011. At the end of this essay, I will compare the Chinese real estate bubble to the Japanese estate bubble of the 1980s. I conclude that while there are problems in China, China’s urbanization movement will not end up bursting like Japan’s housing market did.

 

Review.

Ghost Cities in China systematically illustrates the present ghost cites condition in China and carefully analyses the context of this phenomenon in a very broad perspective. Different from the usual negative Western tone when the Ghost Cities were first reported, the author holds a more positive attitude. The book argues that cities which are empty at a certain time does not necessarily reflect a humiliating planning failure for the government. Huge cities with no people just means that people haven’t moved in yet, as Chinese urbanization grows and consolidates, so more and more people will undoubtedly move into these cities. Before you know it, these empty cities will be full in the a number of years. “Ghost City” is therefore only a specific stage that most of Chinese new cities have to go through. Build it first… and then they will come.

 

ghost4Apart from debating the general western attitude towards Ghost Cities, the author spends lots of space trying to draw a clear image to illustrate the commonly ignored Chinese urbanization movement, which could be one of the largest social experiments in human history (Zhang, 2011 ). The book elaborates the process of making a new city from scratch: from clearing the land to constructing a totally new city as well as describing the government’s effort to activate it. Social issues such as the difficulty of orientating one’s own sense of living space within the huge empty urbanization background is dealt with well as is the role of architecture and planning on a new city’s identity. In the last few chapters, the author explains the sophisticated economic rules behind the property market bubble which seems being on the edge of the explosion. In essence then, the book Ghost Cities in China is not a book which merely focuses on one parodied topic, but is trying to draw the whole picture. It is looking at the totality of the incredible contemporary urbanization movement in China.

 

Introduction

This book will be reviewed mainly in three parts. First, an argument will be raised about the author’s statement that Ghost Cities are only a new city waiting for inhabitants moving. I suggest, for example, that Inner Mongolia’s Ordos is actually a true Ghost City in which nearly half of the new building will be empty for a long time. Secondly, the reason that Ghost Cities are not simply pre-planned for a future urbanization ptterns is that the true condition of these local city developments are much more complex especially in relation to the local economic development policy and practice. Ordos is the result of a estate bubble, for instance. Thirdly, as the author has already analyzed the types and differences in Chinese Ghost Cities, I will make a general comparison between the current estate bubble in China and the Japanese estate bubble thirty years ago. This overall analysis may help China to rethink its current urbanization strategy from a different perspective.

 

  1. True Ghost Cities in China

In the book Ghost Cities in China, the book’s author claims that Ghost Cities are just like big shoes waiting for boys to grow up. However, in some cities like Ordos maybe the shoes are still big even after the boy has grown up. Kangbashi district outside Ordos city was planned for one million people but as it stands there are only 20, 000 permanent residents there (Chen, 2011). Now nearly ten years has passed since this new district began construction in 2006 and the numbers aren’t much higher. After the real estate bubble in 2011, a large amount of half built tall buildings just stopped mid-way in their construction and even still remain unfinished today. According to Song (2012), 80% of those unfinished buildings in Kangbashi, may remain unfinished for a long time because nobody knows how to keep them, maintain them, upgrade them. Most of their former developers are gone after the housing bubble burst. It would be a huge cost for government to finish them for defaulting developers.

 

ghost3To cope with the scale of the over-constructed houses in Ordos Kangbashi (a new town), the local government has launched a huge migrant programme. In this ambitious scheme the government decided to move farmers from fragile desert areas – which will be transformed into an ecological restoration zone (Zhang, 2011) – and place them in the new empty city. However, even this large-scale migrant programme can only absorb a small number of the over-constructed houses. The entire population in the original nearby “old” Ordos city is around 2 million. Assuming that everyone in that city loses their homes and is decamped into the new built area of Ordos Kangbashi, 60 million m2 of houses would be filled up instantaneously. But remarkably, that would only account for half of the area of the new city which has been built in just three years (Zhang, 2011). As a remote city that made great fortune overnight through its coal industry, it is not easy for Ordos Kangbashi to attract millions of migrants to fill its enormous quantity of empty houses. The conclusion is that Ordos Kangbashi needs to suffer a long time to get rid of the label of “Ghost City”. Unlike the author, I think this is definitely a Ghost City.

 

  1. Story for Ordos to be a Ghost Cities

The book “Ghost Cities in China” states that although house prices are extremely high in China, this doesn’t have to mean that there’ll be a bubble in real estate because there’s a rigid demand for houses. Even though the bubble exists, say, the bubble would not cause a huge national economic problem. I agree with the author, however, through my own research, real estate bubbles do exist in some parts of China and has already caused serious problems for local economies. Take a typical Ghost City – as I will call it – in Ordos as the example. The story behind its bubble is not simple.

 

The boom in real estate started at 2006. Citizens in Ordos seemed to have made great fortune overnight. The main source of funds are the coal industry… and home removal compensation. In 2005, the local government accelerated the speed of house removal and started the construction of a new city. Every relocation could get a huge amount of compensation for their former house. The compensation is a large sum of spare cash for those citizens who could then afford to buy several new build houses in Ordos new city. This is pump-prime… or sub-prime.

 

Another important source of funding is the coal industry. On the one hand, citizens can directly get money from the coal business as workers; on the other hand, if somebody owns a house on land that has a known coal resource underneath, they can insist on extremely high compensation for the home removal. According to an official study, the private capital in Ordos is more than RMB200billion (Chen, 2011). In this third-tier city, which is actually a very poor city 30 years ago, people now have wealth but don’t know enough about investment. They cannot understand the stock market but they do have a strong desire to investment, as they are regularly advised to do. As a result, the best investment methods for them is putting these money into real estate market. From 2006 to 2010, the real estate market in Ordos went crazy. Everywhere in Ordos was under construction. A development of 700 houses could be sold out within one day by just 100 buyers (Zhang, 2011). Seven each! Houses are very easy to sell, and the developers started building more and more and more. Once they take the money to build more houses, Ordos citizens are very happy to lend their spare money to those developers as capital. Usury is also an important income for those rich citizens.

 

The profit chain can be simplified like this: Ordos citizens earn huge money from the coal business, they put that money into real estate markets leading to the rapidly growth of house prices. Developers go crazy constructing more houses on the basis that they will make profit, but the money that the developers use in construction are loans from the newly rich citizen with a very high interest. The result of the bubble chain is that a huge amount of money produced by coal are used to constructing uninhabited houses.

 

In Eqianqi, a town in Ordos, the finished houses is built to suit 80,000 inhabitants while the whole population in the town is only 30,000. The bubble chain fractured in 2011 when the government decided to rearrange the coal business and tried to make its earnings more realistic adn thus there was a short transition period in which people suddenly weren’t earning sufficient money from coal. Once the stable cash flow was blocked, developers couldn’t continue building profitably. Then those developers desperately wanted to sell the (unfinished)houses as soon as possible under the pressure of paying back high interest loans. House prices start to fall as everyone realised that these were not good deals and most of the people involved got into serious financial difficulties. Thus Ordos becomes the Ghost City we are discussing now.

 

To conclude this item, nobody can deny the economic failure in Ordos between 2006 and 2011. However, most people in Ordos are still positive about the city’s future. Although an enormous amount of money has been wasted in the estate bubble, the key economic engine – the coal business – has not really decline (yet). On the one hand, the estate market bubble may force Ordos to be a Ghost City for a long time, on the other hand, the lessons learned by the non-catarrophic nature of the estate bubble may lead the investors in Ordos being more rational and changing their target from estate market to other sustainable and real economic issues: such as natural gas which is just starting up. The notorious label of Ghost City won’t kill Ordos, but it will lead it into a different development path after some considerable pain perhaps.

 

  1. Comparison with Japanese estate bubble

The contemporary Chinese urbanization model is very similar to Japan’s urbanization movement some 30 years ago. In the late 1980s, Japan suffered a serious real estate bubble and it directly led to Japan’s “lost decade” of the 1990s. It would be very interesting to compare Chinese urbanization and Japanese urbanization. Rethinking the failure of Japan is also helpful to prevent China from following in Japan’s footsteps.

 

ghost7The key difference between China and Japan is the property of land. Japanese land is in a free market while Chinese land is tightly held by Chinese government. Japanese culture is similar to Chinese culture and people regard owing a house as one of the most important things in their life. As the country is located in a narrow island, people regard land as one of the most reliable properties. Japanese urbanization continued from the late 1950s to 1975, and land prices kept rising at around 5% per year for 10 years (Song & You, 2013), which contributed to Japanese’s positive attitude towards real estate investment. When many Japanese people became super rich in the mid-1980s because of their international trade, huge amounts of money were injected into the real estate market from other real economic areas.

 

To contrast, although a house is also important in Chinese culture, Chinese people’s attitude towards land is different from the Japanese. A house is not connected to the land in Chinese people’s mindset because all land ultimately belongs to the Chinese government. Thus the price of a house in China is much more flexible according to the service life of the house. Because the Chinese government controls the land options, and they gain a considerable profit through the land trade, Chinese government would not let the bubble grow and burst in the way it happened in Japan. Unlike the controlling interest – in a managerial sense – of the Chinese state, the Japanese government does not control the real estate market but allows the market itself to decide. The market is much freer than the tight economic control in China, as we have seen recently with Chinese interventionist approach to stock market jitters. Japanese real estate markets are driven by an invisible hand while Chinese markets are driven a strong and very visible hand.

 

Another difference is that the two countries are in different stages of urbanization. Japan’s real estate bubble started at 1985 when Japan had almost finished its urbanization. Three quarters of the Japanese population are urban citizens, and in the last five years the urban population has only increased by 0.9% (Bao, 2015). In effect, the number of houses in existence is reasonably adequate even though land is in short supply and speculation in immovable property assets is still a danger.

 

China, on the other hand, is just at the mid-point of its urbanization. Only half of China’s population are urban residents. There are huge amounts of empty houses being built because most of those houses are bound to be filled in the near future as China heads up to the Developing World’s average of 75% urbanized citizens. The Japanese bubble caused a serious problem because the production numbers exceeded realizable needs, which is similar situation that Ordos finds itself in. In most parts of China, new immigrants will continue to move into empty houses in cities and make their homes. China’s seemingly insatiable demand for houses will not decline in the immediate future and this will stave off the tendency to decline.

 

However, no matter how stable the Chinese economic system is, some problems still exist. When the construction of a new area becomes an evaluation criterion of the government’s achievement, there is an inevitable tendency for local officials ot plan unnecessary new construction projects if condition allows, merely to fulfil their targets and achieve promotion. It is still the case, that for some local governments, the bigger the area that they can construct, the better reward they may get. Undoubtedly – inevitably – many unnecessary projects are underway. Another disadvantage is that because of the tight schedule for the construction a new district, necessary supplementary buildings – such as schools and hospitals may be ignored in the first round of planning. This short-term decision-making can delay the time when new inhabitants will move in and it cause the new area to retain the illusion of a Ghost City for longer.

 

To conclude, the author’s statement about Ghost Cities is good but inadequate. I suggest that Ordos is a Ghost City that will never be full. The whole city can accommodate 5 million people in total, while the whole population in Ordos is 2 million including a 50,000 floating population. More than half of Ordos’ urban area would be empty even if all of the rural residents have moved into the urban area.

 

The Ghost City of Ordos is the result of real estate bubble. The basic story is that a huge amount of money produced by coal business was injected into the estate market and a negative chain reaction was triggered. Ghost City Ordos was born when the chain broke. However, such an economic failure will not put Ordos to death as its coal resource is still the city’s strongest financial support. When comparing the Chinese estate bubble with the Japanese estate bubble of the 1990s, the result is pretty positive. Chinese government has tight control over the estate market and the risk is reduced by releasing a series of interventionist policies. However, in my view, there is one clear Chinese way forward. The operating mechanisms of state government and local city planning should be brought to bear to forbid “unnecessary” construction.

 

References:

Ba, S. (2015). “The reason of Japan’s real estate bubble burst”. [Online]. Available from:http://bashusong.baijia.baidu.com/article/45640 (Accessed: 10 May 2015)

Chen, N. (2011). Ordos: Tense three-cornered chain. [Online]. Available from:http://www.infzm.com/content/61125  (Accessed: 10 May 2015)

Qiao, Yunhong. (2013). “Briefly on the development way of the new comprehensice rural associations.” College of Political Science and law, Taiyuan University of Technology.

Song, T. & You, F. (2013). “Overview about Japan’s real estate bubble”. Institute of Economics, Xiamen University.

Zhang, R. (2011). Emergency situation of 200billion private capital in Ordos. [Online]. Available from: http://www.infzm.com/content/64908 (Accessed: 10 May 2015)

Zhu, Z.(2014). “The cause of “Ghost City” and it’s solution in the view of urban planning”. Real Estate Tribune. No7. Dalian urban planning and research institute.