Why is China Building Ghost Cities?

According to Wade Shepard (“Ghost Cities of China: The Story of Cities without People in the World’s Most Populated Country”, Zed Books), the way in which property values are structured plays a role in creation of ghost cities. “Economically affordable housing” must be lived in by the owner and cannot be bought and sold as an investment. And the developer is permitted to sell these houses at 5% over the cost of construction.

By contrast, “commodity housing” can be bought and sold as an investment. China’s large population guarantees an ongoing demand for housing. Commodity housing is a more secure way to store money. So commodity housing is sold as an investment. In addition, these houses serve as future homes for the next generation.

As a matter of policy, China’s municipalities used to pass on 40% of tax revenues to Beijing and are responsible for 80% of their expenses. Hence, the need to seek non-tax revenues. According to Shepard, 40% of revenue of local governments in China is from land sales (2015). This created USD438 billion in revenue for local governments (in 2012).

Development is with time scales of 20 years (or more). So developers build for quick return with hope that investors will invest for the long haul. Many developments criticized as ghost cities have become vibrant centres (eventually). And these include: Pudong, Zhujiang New Town, Zhengdong New Area, Tianducheng and several malls. Western media are hasty and often misreport on China because they perceive from their western lens.

While most of the so-called ghost cities have failed to live up to their original promise, very few have failed completely. So for some it may require a revision of plans with more realistic goals but in general, they all require a little more time to be fully occupied.

Reference:

The Truth About China’s Futuristic Ghost Cities (https://www.richardvanhooijdonk.com)