Construction in China’s Ghost Towns

By Edward Harrison On Jan 27, 2010

A reader who invests in emerging markets sent me an interesting article from the South China Morning Post. Excerpts are below.

China’s economic stimulus programme has accelerated the already aggressive pace of urban development in the country. But while investment in construction is creating much-needed infrastructure in some cities, it is also adding to the number of ghost towns with nearly empty facilities in other parts of the mainland.

The nation already has its share of empty edifices. Overlooking Beijing’s "Water Cube" swimming centre and "Bird’s Nest" stadium stands Pangu Plaza, a huge but little-used five-tower complex spanning the length of seven football fields. The project includes an office block, serviced-apartment buildings, a shopping centre and the Pangu 7 Star Hotel.

Although Pangu Plaza was completed two years ago, the shopping centre is mostly empty, with virtually no tenants and many outlets boarded up, Patrick Chovanec, a professor at the School of Economics and Management at Tsinghua University, said. "There are no lights in the offices. At night, people don’t seem to be home."

A public relations executive at the Pangu hotel said the shopping centre and office building are still seeking tenants, adding: "Our hotel’s occupancy rate is alright, but this is the low season, so the occupancy is low at the moment."…

Chovanec describes his visit to a development zone in Yingkou, a port city in Liaoning province, where an industrial zone and a residential zone with a marina are planned.

"The scale of this thing will take your breath away. It is comparable in scale to Pudong (Shanghai’s business district)," he said.

Yingkou’s development zone is under development and hence is mostly empty space.

A government building and a steel mill are possibly the only two buildings in the zone, Chovanec said. "The administrative building is this monstrous monolith. It’s almost empty except for a presentation."

The steel mill was completed one year ago, added Chovanec. "It’s sitting there empty and they haven’t fired up the furnace. There is so much overcapacity in steel, they can’t sell what they make."

Over in Guangdong, many residential units sit empty, said Neeraj Sawhney, a Hong Kong textile trader who often travels to the province.

"I have seen houses and shops built in second and third-tier cities in Guangdong in 2005 that are still empty," he said. "Supply is much more than demand in these cities. Funding was easily available for developers, who went ahead and constructed, dis regarding demand."…

"If you spend money, you’ll make 8 per cent GDP growth," Chovanec said. "Whether it’s productive is another question. The central government said to the provinces, give us your wish list. The local governments accelerated their projects.

"You got 10 to 20 years of infrastructure developments accelerated to a three-year time frame. Once you accelerate it like that, the vetting process gets thrown out the window."

Although it is difficult to judge any single project as unviable, given that so many massive projects are being rolled out, the probability of waste increases, Chovanec said.

"All over the country, every province has at least one mega project. It’s one thing to build one mega project over a 10-year plan. It’s another thing to build this 10-year project in two years and do many of them all over the country. How much capacity expansion can the economy digest at one time?"

In Yingchuan, the capital of Ningxia province, 70 per cent of GDP growth last year was related to fixed-asset investment, according to the city’s officials.

"I can’t think of any economy where that rate of growth is sustainable," Bruce Richardson, an American businessman living in Yingchuan, said.

Both useful infrastructure and empty buildings can be seen in Yingchuan, he said. "I see significant investment in transport infrastructure like roads and airports. As soon as a road is finished, it’s used. There are no bridges to nowhere."

On the other hand, high-end residential units in Yingchuan have a 50 per cent vacancy rate. The local government is considering discouraging the purchase of second or third residential units to slow construction, Richardson said…

…the bustling coastal cities of Quanzhou and Jinjiang in Fujian province are benefiting from the construction of badly needed infrastructure.

The two cities are merging as part of the government’s policy to create mega cities, Douglas Sheridan, a United States footwear trader who does business in Jinjiang, said.

The result is a series of infrastructure projects such as highways, sewage systems and buildings in Quanzhou and Jinjiang, Sheridan said. "They are merging cities, but they don’t have enough fundamental infrastructure like transport and food supply logistics. Buses are not enough. There are more trucks on the roads, so traffic flow is increasing enormously."

Woetzel said: "On a national level, China has another 15 to 20 years of rapid urbanisation, so on average, urban construction is a necessary development."

Also see other posts with discussion and video clips of similar dynamics:

Source

Ghost towns grow with urban development – SCMP.com