Why did CHINA build so many “GHOST CITIES?
This is Ordos a city located in the north of China, it has thousands of houses, parks, theaters airports,s and all the necessary infrastructure for the functioning of an average city. The special thing is that it is practically uninhabited.
Its construction began in 2004 and it was expected that there would be one million inhabitants, but only about one hundred thousand people lived there. This is tiantucheng a small replica of Paris with its Eiffel Tower. It was built in 2008 and designed to house about 100 000 people, but less than 30 000 live among dozens of empty buildings. ghost cities
Just like these two. There are other cities in different parts of China with smaller populations than expected when they were built. Thus they have been referred to as ghost cities in 2014 50 Chinese cities were labeled as ghost cities.
The question is: why were they built, and what is their relationship to China’s indebtedness of 300 percent of its GDP since the 1980s, with its economic liberalization policies, china accelerated its industrialization process based on an export-oriented economy.
This encouraged local governments to create industrial zones to bring in manufacturing activities and thus boost the local economy and the economic dynamism led to the immigration of workers from the countryside to the cities, which naturally increased the demand for housing and other goods and services. ghost cities.
So urban expansion and industrial development were seen as the engines of local economies. However, starting in 2006, china’s economic slowdown affected the economy of cities, especially small and medium-sized ones, in 2006, china’s exports peaked at 36 percent of its GDP, but followed an increasing trend in the following years as economies advanced,
they shift factors of production from the industrial sector to the service sector, known as the outsourcing of the economy, but small and medium-sized cities in china have had more difficulties than large cities in their restructuring and outsourcing process, partly due to the lack of qualified workers. ghost cities.
For that reason, and because of the mentioned slowdown in industrial growth, the pace of population growth in some medium-sized cities has slowed down, while in large cities it has increased. But this still does not explain the phenomenon of ghost cities. It turns out that, to evaluate the performance of local officials, emphasis is placed on economic growth due to the industrial slowdown and the difficulties to modernize their economies in these intermediate cities, ghost cities.
the development of real estate projects has become the engine of economic growth. In other words, construction has partially replaced the manufacturing industry. This explains the massive expropriation of land from farmers and other landowners who are compensated at a value. Far below the market price, in other words, local governments, buy land at very low prices to sell the rights of use or rent it to real estate developers for the construction of projects then,
as monopolistic land providers, local governments allocate as much land as they want to be based on the needs of economic growth and not on the real demand for housing occupancy, and this is how ghost cities have been built because the construction sector has become essential to increase local government revenues and to maintain a good image of officials in front of the.
The central government, in short, the more land, is given to real estate developers, the higher the revenues and the greater the apparent economic dynamism because of these incentives, the contribution of the construction sector to the national GDP multiplied by four times increasing from four percent in 1997 to 15 percent in 2015., however, some cities were considered as ghosts, but are not now, as is the case of change zhu. ghost cities.
This city experienced a period of growth based on its rapid industrialization, but in the 1990s a large number of local companies suffered from competition from foreign companies by the 2000s. It was already lagging behind other cities in the province. As a consequence, the real estate sector grew strongly between 2008 and 2012, and the area of land rented and allocated for residential use tripled,
but the population growth averaged only 1.6 percent in the same period, which caused the ghost town phenomenon due to the high unemployment rate. Faced with this situation, so popular in the international media, some politicians and academics expressed concerns that it was not the only city with the same problem. ghost cities.
Therefore, the central government responded in 2013 by issuing bans against the construction of new projects and new cities without prior approval. Indeed, in 2014, the housing stock began to decline, but chang zhu suffered the consequences. Revenue from land release fell sharply that same year, therefore constrained by this revenue stream. ghost cities.
The local government was forced to resort to more borrowing, although there are no official debt figures for this city. According to the french center for Research on contemporary china, it is estimated that 2012 was its best year in terms of real estate revenues Chiang Chu’s debt represented 90 percent of its GDP. This construction boom and debt fever originated mainly during the global crisis of 2008.
When the real estate market and in general, the economy suffered a sharp slowdown so that same year, china’s central bank lowered the interest rate and the government announced more flexible conditions for housing loans. The result was that housing loans tripled from 9.3 of GDP in 2008 to 29.1 percent in 2018. Similarly, ghost cities.
bank lending to private companies in China, which also includes real estate developers, reached the equivalent of 164 percent of GDP in 2019 much higher than emerging countries such as Brazil, Russia, India, and Mexico. And if we look at the combined support of companies, households, and government indebtedness already reached 300 a GDP in 2019.
And how did we mention it? Even though there are no official indicators of local government debt according to an audit cited in an article by an economist, Milen Gollard in 18 provinces, 16 cities, and 36 cantons, the territorial entities studied present a rate of indebtedness higher than 400 percent of their revenues. ghost cities.
The number of ghost towns has likely decreased in recent years, thanks to tighter restrictions, but in turn, this has encouraged more indebtedness, which is closely linked to the lack of tax revenue from local governments which treat land as free money by expropriating it. At a low price and then handing it over at higher prices to developers who also take advantage of interest bases to build massive housing projects without a real need.
It seems that the real estate sector went into crisis after the collapse of the overground because it could not pay its debt. So ghost cities were a quick tool to boost economic growth, but local governments did not consider their financial viability beforehand.