The Phantom Growth of China’s Ghost Cities

Bloomberg has a new video series called “China’s imaginary cities.”

Correspondent Adam Johnson describes how the Chinese government has built huge cities where no one still lives. The expectation is that China will “grow” in these cities.

Great idea, really. Authoritarian planners in Beijing or everywhere, for example, would do well to move one million or more people to a pre-planned area.

Then they build and wait for the infrastructure – or rather, the whole metropolis, skyscrapers, traffic lights and everything.

Stop for a moment and think how disgusting it is. The last time your editor checked, central planning didn’t work very well. Historically, bureaucrats who use directives over long distances have poor resource allocations.

But are fantasy cities a recipe for busts? Some say no. For example, a Bloomberg reporter assures us that the Chinese economy is different, that is, “this time different.” (Where have we heard this before …)

It is normal for only tens of thousands of people to live in these imaginary cities built for millions of residents, because all the empty square images will eventually be used well.

As a bonus, building imaginary cities is great for economic growth.

By crossing super-highways that stretched to the middle of nowhere, erecting steel and glass towers in the towers, China was involved in construction, civil engineering, urban planning, and so on. creates new jobs in the fields. All this construction looks incredible on paper. Ghost-like infrastructure is considered a productive product and the super-aggressive GDP target is maintained.

What’s wrong with that picture?

First, there is the problem of central planning. Growth and development are free market forces with trial and error signatures. Successful cities are built from scratch, not with a bureaucratic stamp. But how does the government know where the new metropolis should go or what should be its optimal size?

Then you have accounting problems. Should tomorrow’s promise be reflected so easily in today’s balance sheets?

Imagine a state-owned corporation saying, “We will grow by 20% a year by building empty factories in an empty space that no one will use for a long time. Don’t worry, there is a demand for these factories. will appear. We will finally benefit from them. Just don’t ask when. “

Such a plan would be met with brutality by the market, as public companies are responsible for profit and investment return (ROI). (At least most of the time – in times of bubbles, investors will happily stop their rational faculties.)

The Chinese government, of course, does not have to profit from its actions. Or it can measure results in a completely unconventional way through “how many jobs we have created” or “what GDP figures look like.”

At the end of the day, the “rock city” mandate goes directly to John Maynard Keynes, who once offered to dig a hole and then refill it to get the men to work.

China is improving. Instead of digging holes, they build buildings. Although the effect is the same. “One day” will be the value of empty skyscrapers – if at first they are not condemned as outdated buildings, but until then they are just holes.

Chinese bulls are not worried about imaginary cities for at least three reasons.

First, they (with a little confidence) convinced themselves that the empty metropolis would one day (not be late).

Second, they think that even if the imaginary cities do not work, China has a lot of money to burn.

Third, as the old saying goes, “a spread loan does no harm.” As long as speculative music is played, real estate developers can continue to dance.

The problem, as always, comes when the music stops. If China turns out to have more than 20 years of power, for example, then hundreds of billions of dollars worth of sustainable projects will have to be scrapped.

The idea that China’s “economic miracle” is in fact a bet that has a big impact on mercantilism is even harsher … supported by smuggling construction … the tail end of the boom is inadvertently removed from pastry predictions in the sky for the future. growth

This is another favorite tactic of investment maniacs: to cover the growth curves towards the eternal sky, as well as mortgage for today (and borrow against it).

Although China can write checks to pay for the demolition of all these cities, there are many that are now entering the global economy with the assumption that China’s growth is a real deal. When much of this growth is actually a “nightmare” or “imaginary” growth – nowhere near these empty monuments – the collapse of this multiplicity can be detrimental.