The term “ghost city” is a loaded one, often deployed to skew toward a particular viewpoint. In the context of China’s economy, it has become shorthand for perhaps the largest asset bubble in human history. While that may ultimately be the case, in truth China’s ghost cities aren’t about the past but its future.
There is a great deal that is misunderstood about the country’s path toward urbanization and modernity. A lot of it is simply the scale; it is incomprehensible that 300 – 500 million people could be removed from rural subsistence to urban industry, and to do so in such a short period of several decades.
These are no John Maynard Keynes’ pyramids in the desert, or the stuffing of coal mines with sacks of gold to be dug up. In other words, strictly speaking the ghost cities are not “stimulus” for a Chinese economy on the slowdown to get back up. They are the intersection of idiosyncratic factors with these enormous demographic challenges.
For example, only the government can own land in China. What is “owned” in the real estate market is the right to “land use.” And it is a temporary one, typically only two years. Therefore, since the property is owned by the state, meaning there are no real estate taxes, and you only have a short period of time to do something, there is every incentive to build right now and wait for demand to catch up for however long that might take. In China, there is always a potential ocean of demand.
The real issue, then, is one of time. If your baseline is pre-2007 China “miracle”, then rabid construction makes sense for rapid, sustained growth that will narrow the timeframe considerably between construction and use. If the actual baseline turns out to be far different, then questions about asset bubbles arise due to what become obvious incongruities. Vacancy does matter. The term “ghost city” becomes ubiquitous with all its negative connotations.
