Tuesday, December 21, 2010

The Ghost Cities of China

Fortune reports:

Last week, the naysayers were handed quite a piece of convincing evidence in the form of a research report from Hong Kong-based outfit Forensic Asia entitled China: Ghost Cities. Gillem Tulloch, the analyst who wrote it, did some shoe-leather (of the virtual web surfing sort) research to compile a list of seven ghost cities in China that should strike fear into the heart of anyone with exposure to the country's financial sector.

We're not talking ghost towns of the old West type, the ones that time passed by and left as mere intersections with a saloon and a hardware store. We're talking massive cities that the Chinese government is in the process of building in the hopes that people will come. But the people have not come. Yet the billions are in the process of being spent.

What's going on here is that the decision to build, or not build, remains in the hands of local central planners, who don't know the difference between a price signal and a traffic signal. For them it's all about showing up at regional central planning meetings with huge growth statistics.

Al-Jazeera TV spoke with Patrick Chovanec of Tsinghua University who explained the situation, “Who wants to be the mayor who reports that he didn’t get 8% GDP growth this year? Nobody wants to come forward with that. So the incentives in the system are to build. And if that’s the easiest way to achieve that growth, then you build.”

Bottom line, there is still a lot of central planning in China that is a major detriment to the country. Couple this with the bizarre multi-year program to inflate the Chinese money supply to decrease its value against the dollar, and it is obvious that China should not be viewed solely as the next great growth area, but rather a country on the edge, torn between free market trends that could launch China into great prosperity and central planning stickiness that will suffocate the huge country. The outcome is not at all clear.


1 comment:

  1. Granted Inner Mongolia is one of the least populated area in China where sheep outnumber human, Ordos is not a ghost town.

    Check out the photos for Ordos(鄂尔多斯) and the new Kangbashi district(康巴什) on image dot Baidu dot com, see if there are people or not.