China's Uninhabited Cities: Overdeveloped, Overbuilt, Overkill

Aug. 25, 2011 - PRLog -- Some say that the best expression of excess capacity and overdevelopment in China is its real estate market. Shanghai, for example, is a prime instance of the property boom that the country has experienced in the past decade. In key cities such as Beijing, property prices has already increased by more than 140 percent, making it unaffordable for a massive majority of homebuyers.

Negative real interest rates for savers are at the heart of what many believe is a burgeoning property bubble. With nominal interest rates going at a pittance, stringent capital controls and volatility in China’s equity markets, there seems to be no real alternative outlets for the nation of savers (China saved 50% of its GDP in 2010) and it is therefore no huge wonder that investors have turned to real estate as investment options.

Away from the bright lights of glitzy urban centers like Beijing and Shanghai, newly built city centres, such as those in Zhengzhou and Tangshan, have popped up on maps, in a race to join in the building boom.

Kangbashi New Area, in Ordos in Inner Mongolia is a curious case study in China’s property boom. Conceived and built in a breakneck speed of five years, Kangbashi boasts state-of-the-art museums, sculpture gardens and streets of modern high-rise apartments. As part of China’s five-year economic plan, Kangbashi was earmarked to be home for 1 million residents. The twist is: Since it’s completion in 2005, only 30,000 people have settled in.

Originally intended as a sub-urban residential site, Kangbashi sits on US$160 billion worth in government buildings alone. Today, Kangbashi is ridiculed and known to the Chinese as a “ghost city”.

Projects like these are not unique to China. Similar cases have been reported in other cities such as Zhengzhou, Tangshan and Dongguan, as part of China’s five-year plan to build 36 million affordable homes and move people out of urban cities.

Are these large-scale constructions actually a response to a strong demand market, and will these projects actually reach a point of fruition? Or will they simply remain a “white elephant”?

The case of Kangbashi illustrates how government policies can actually be part of a process that creates a bubble economy, and along with it, unplanned and unwanted negative externalities.

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