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Will ghost cities haunt China?

By Liu Dong Source:Global Times Published: 2013-7-30 18:23:02

Recently completed skyscrapers jostle with those still under construction in the Changzhou skyline. Photo: Liu Dong/GT


 

As a taxi driver in Changzhou for a decade, Zhang Weixin never thought his hometown would become a "ghost city" someday. In his eyes, the city seems to be doing better than ever.

Located at the heart of the Yangtze River Delta, the 2,500-year-old eastern coastal city of Changzhou used to be called the Dragon City, for its prosperity and wealth. But it has been facing harsh tail winds recently after some media reports labeled it a "ghost city."

According to a National Business Daily report in January, most newly built residential compounds along Wuyi Road, a new area of the city, had a high vacancy rate as few lights could be seen at night.

However, the Changzhou government soon published an official announcement to refute such accusations, calling it groundless to label Changzhou as a "ghost city" simply due to a lack of lights.

"Most properties on Wuyi Road are just finished or still under construction, it is unreasonable to judge the vacancy rate when the area is still in a transition period," Wu Haiyong, deputy director of Changzhou Housing Administration Bureau said at a press conference in February.     

However, this clarification didn't settle the argument among the public and the media as more and more "ghost cities" have emerged nationwide.

According to a China Youth Daily report in July, at least 12 such ghost cities across the country have been  found. Besides the best known of these - Ordos in North China's Inner Mongolia Autonomous Region, the list also included Changzhou in Jiangsu, Zhengdong New Area in Henan Province, Shiyan in Hubei and Chenggong District of Kunming in Yunnan. 

Despite their varied geographical locations and economic development levels, these cities share one common characteristic: their local governments had all placed a large amount of investment into building new zones filled with commercial facilities, residential compounds and infrastructure. Only one thing is missing, people.

Dragon city or ghost city 

When the Global Times visited Changzhou on July 22, one could see many skyscrapers tower toward the horizon along Wuyi Road, displaying the city's ambition to be a real metropolis.

Zhang Weixin seemed torn when asked about the city's largest and newest property project.

"It's everywhere. As you can see, new property projects are all the way along the streets, there are too many of them so I can't figure out which ones are the newest or the biggest," Zhang said.

But at Injoy Plaza, the biggest shopping mall and apartment complex on Wuyi Road which opened in May 2012, a resident named Wang who moved in last year said only one-third of floor space in her building was occupied.

Wang told the Global Times an easy way to judge whether an apartment is really inhabited or not - by counting the air-conditioning units, indispensable in this hot part of China. There are not many to be seen in big compounds with a dozen buildings, each over 30 floors.

One employee from the Tesco supermarket nearby confirmed with the Global Times that business is not good due to a lack of customers.

Property bubble or bust

Wuyi Road is just the epitome of Changzhou's focus on real estate development in recent years. The local authority has introduced a series of policies to encourage developers and buyers.

Changzhou's first subway line will break ground next year and will mainly travel under Wuyi Road. Property developers noted that local authorities have already invested 8 billion yuan ($1.3048 billion) to renovate the surroundings of Wuyi Road.

A manager from Czfcw.com, the city's biggest real estate agency, told the Global Times that some 100 property projects are still under construction in Changzhou now.

Changzhou's population broke 4.5 million in 2012, a nearly 20 percent increase compared with 10 years ago. However, figures show most of this growth came from migrant workers brought in to build the city and who have limited spending power.

Compared with nearby cities such as Suzhou and Nanjing in Jiangsu Province, Changzhou holds far less attraction for the middle class due to its lack of schools, institutions and enterprises. 

Previous media reports questioned if the city will ever be able to attract enough popularity to consume its huge property stock in the future.

But the voice of the local government seems to be optimistic. According to Lu Jingfeng, director of real estate supervision at the Changzhou Housing Administration Bureau, the trading volume of commercial housing in Changzhou increased by 29 percent in the first half of this year. 

Last year, the trading volume of commercial housing in the city reached 6.58 million square meters, or 62,093 residences, only second to Nanjing and Suzhou in Jiangsu Province.

"The housing prices in Changzhou are much lower than those in first-tier cities which is helpful for building up demand," Lu told the Global Times.

Lu also clarified that opinions about the high amounts of unused property were misguided. He said more than half of the city's 10 million square meters of real estate, built since 2009, either still belonged to developers or was intended to be used to resettle people displaced from their original homes.

"It is unscientific to compare Changzhou with a city like Ordos. Not one project stopped in Changzhou last year and prices have not fallen like they have there. I think media have exaggerated the facts," Lu added.

Lu said that the rapid property construction in Changzhou is because "it is happening everywhere in China now." But he believes the vacancy situation will change as the city becomes more mature in the next few years.

Question of ghost cities

The ghost city phenomenon has attracted wide attention at home and abroad, with some foreign media speculating that these cities have become a symbol of China's economy downturn.

The best-known ghost city might be Ordos. It used to be one of the richest cities in the mainland and was nicknamed "China's Dubai," but its economy is now in a free fall.

The rapid growth of the city's GDP was created by the coal-driven industry over the past decade. A large part of the wealth it accumulated through the coal industry was then funneled into the real estate sector. Money gained from property investment went back into the coal industry or was re-invested into more real estate, forming a vicious circle.

However, the coal industry soon suffered from a slide in demand as well as increasing competition from cheaper imported coal. As a result, when the local economy cooled, the real estate bubble burst.

A similar story also happened in Hebi, Henan province, where an initial boom due to coal led to a collapse after resources dried up in the 1990s. The local government then started to build a brand new city 40 kilometers away in 1992. But a media report this May called it an "empty city" as few people and industries were found in the new town, even after 20 years of development. 

Learning from Ordos, many other local governments are now trying hard to promote real industries in new development zones rather than solely depending on a real estate-driven economy to keep people around.

As early as 2009, the Changzhou government claimed they were launching a series of preferential policies to attract major new industries including equipment manufacturing, new energy, new materials, electronic information, biotech and medicine to come to the area to enhance their competitiveness for talents. 

"With the high-speed train having formed a fast channel in the Yangtze River Delta area and tight relations among cities in the area, I believe the economy in Changzhou will continue to boom in the future," said Lu.  

Urbanization puzzle

Experts said that beyond the "ghost cities" phenomenon, the real urgency is the need to reflect on current urbanization patterns in China.

"China is so big and cities are very different from each other due to their particular situations. To be frank, I think that having the occasional vacancy problem is normal during any development process," Li Zhanjun, director of the Research and Development Institute at E-house China told the Global Times

"But the lesson of cities like Ordos for local governments is that a well-developed city needs to build up a well-developed industrial chain and well-balanced industrial structure first. If the local authority's strategy is to attract popularity by just building a city, then it is taking great risks for its economic future," Li noted.

Meanwhile, Liu Yuan, senior manager of Centaline Property real estate agency in Shanghai told the Global Times that prices are a key indicator of a property bubble. 

"New cities can't price their real estate too high for people to afford," Liu said. While such a move might initially be used to attract demand and interest from a high-class or wealthy clientele, the real estate market in China is tired and high prices will simply put people off.

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