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June 14, 2012

China Ghost Cities being Filled

In December, 2010, London’s Daily Mail reported that the Zhengzhou New Area was China’s largest “Ghost City.” A visit to the Zhengzhou New Area indicates exactly the opposite. Chinese “Ghost Cities” are large areas of new development that are virtually unoccupied. The most famous example is Ordos, a new and reportedly empty city, built to replace an older city in Inner Mongolia.

A visit in 2011 revealed anything but a Ghost City. Granted, no-one would mistake the traffic for Beijing Third Ring Road volumes, but virtually all of the parking spaces were taken and there was traffic on the streets.

That ultimate indicator of Chinese urbanization, the availability of frequent taxicab service was well in evidence. Two of the city’s bus rapid transit lines serve the interior circle road, again indicating a substantial threshold of non-ghost urbanization.

Zhengzhou

China is urbanizing at 18 to 25 million people per year. This is a Los Angeles every year. It is easy for them to fill up "ghost cities".



Wendell Cox is debunked a satellite photo published in Business Insider showing large tracts of construction to the North East and West of Changsha, Hunan – a city twice the size of Los Angeles – lying vacant.

Changsa

Part of the Excess Construction were Bribes

Many different corrupt officials are using empty buildings as places to hide money. It is the empty buildings themselves that are the stores of value and not physical cash. (There is a common saying that people hide money at home under their mattress when they do not trust holding it in a bank account Hiding a lot of money in physical cash in China is tough because the largest currency is 100RMB. There is talk of people having rooms just with stacks of cash but a room full of US$10-$20 bills fairly obvious way to get caught for corruption)

They order them built and it costs them nothing personally. It is built wholesale at cost by builders who get say 4-9 regular contracts and one pro-bono (cost of materials written off in another regular project). It is 10 to 20% of extra effort as a price for profitable work.

At some later point it gets released to start cashing it in.

That kind of property is also something they are not forced to unload or introduce to the market, to cause a collapse in prices. It can be put on or pulled off with far less financial pressure. They do not have any loans or anything against it It can take the edge off of a future runup in prices as this sitting capacity would be introduced.

If prices are going down the holders can wait.

Say there are ten thousand officials each with 500-5000 units sitting around. Their could be one million who each have one or ten as well. It costs them virtually nothing to order built for them.

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