China’s Modern Day Ghost Cities

The GDP system has found several criticisms. However, none of the criticisms have been as apparent as an unusual phenomenon called “ghost cities” and “ghost towns” which have cropped up all across China. The sheer wastage and diversion of resources to non productive purposes to meet the government’s targets for GDP growth is apparent in these Chinese cities. Let’s take a closer look at them in this article.

What is a Ghost City ?

A ghost city or a ghost town is a geographical area which appears to have the entire infrastructure required for a city. However, these towns lack in human habitation. By looking at the infrastructure in the city, it might appear that the city is densely populated. However, since no humans are found, the city is often humorously said to be inhabited by ghosts. Hence, the derogatory term, ghost city.

The landscape of China is rife with ghost cities. The countries recent boom in economic activity led many to believe that they are building cities that will be the hub of economic activity in the future. However, it is apparent now that the Chinese may have miscalculated the rates of growth that were expected in these geographical areas.

Example: Ordos

A prime example of ghost cities is a city called Ordos in Inner Mongolia. The economy of Ordos was sustained by the rich coal deposits that were present in the area. Ordos was one of the largest suppliers of coal in the world. The local GDP of the Ordos area was growing at an astounding 15% per year growth rate for many years. This meant that the size of the local economy was doubling every five years.

However, the area in and around Ordos was thinly populated. The Chinese government saw this is as an issue that needed to be rectified. Hence, in 2003, the Chinese government gave a major impetus to development in that area. Contracts were signed with leading developers who were asked to build world class infrastructure and facilities for a city that could house at least one million people.

Modern day Ordos has it all. It has shopping malls, public transport, restaurants and even multiple sports stadiums. However, Ordos is inhabited by a handful of people. In 2014, the multi-storied shopping malls are empty. The plush apartments meant for the wealthy are inhabited by squatters. The Chinese governments allows any business to operate rent free form these premises in the hope that it would bring some inhabitants to this otherwise prime example of extremely wasteful economic activity.

GDP and Ghost Cities

Now, the question arises as to what GDP has to do with these ghost towns and cities. They are simply a blunder of the wrong estimation by the Chinese government. Why is GDP to be blamed?

Well, the answer is simple. The real reason why these cities were built was to keep the Chinese GDP going up. China is still the fastest growing economy in the world. However, it is facing stiff competition from its neighbor India. China wanted to attract more and more foreign investments and hence wanted to maintain its supremacy as the fastest growing economy.

Also, China is a communist country. This means that the planning is largely centralized and conducted by government bureaucrats. The performance of government bureaucrats was rated based on the addition that they made to the GDP of their particular regions. The fastest way to grow GDP is to build cities. Obviously, a lot of expenditure is involved in building cities. Since GDP is a system which measures expenditure, building cities makes the GDP skyrocket in the short run.

Hence, Ordos was built in the grand manner that it was because it allowed China to maintain a false image of being the fastest growing economy in the world. Also, it allowed bureaucrats in the Ordos region become more powerful as they helped the central government reach its target.

Ghost Cities and Debt

Now, creation of cities like Ordos requires vast capital expenditure. However, Chinese government did not have this kind of money to spend. Hence, Ordos and almost all other ghost cities in China were built on the hope that once humans inhabit the city, the government will generate revenue in the form of taxes. This money will then be used to pay off the debt and then everybody will be better off!

However, human inhabitation simply did not happen. Today, the Chinese government has issued a ban on any sort of construction activity in the area. Modern day Ordos is a debt ridden ghost town with very little hope of salvation or solvency in the near term.

Implosion of Ghost Cities

Modern day Ordos is a city that has imploded. Most of the money that was generated in the real estate sector has been reinvested in coal and then back into real estate. However, with dwindling real estate sales, most developers find their money stuck in the market leaving the healthy coal business cash strapped.

Most coal mining companies in Ordos are facing heavy interest costs thanks to their venture into the real estate industry. This coupled with the fact that coal prices across the world have gone down has severely hit the local economy of the area. The stellar 15% per annum compounded growth has now been replaced by an equally spectacular decline.

The Chinese government and the local officials are still betting on revival of the area. However, at the present moment, the government is busy extending more loans from government banks at favorable terms to Ordos in an attempt to delay what seems like an inevitable implosion.