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Source link: http://archive.mises.org/16436/the-inevitable-result-of-central-planning-chinas-ghost-cities-and-malls/

The Inevitable Result of Central Planning: China’s Ghost Cities and Malls

April 10, 2011 by

A stunning video documentary by Dateline (Australia) about the 64 million vacant apartments in China, a result of the government building 10 new cities each year. All this to keep up the appearance of endless economic growth. A classic example of what happens when policy is determined by chasing favorable statistics (reality be damned). It goes without saying that the only thing that makes this possible is the fact that it’s paid for with “public” spending.

Here are some links to Google Maps, where you can see satellite images of some of the cities mentioned in the report:

Zhengzhou New District, Henan
South China Mall, Dongguan
Ordos, Inner Mongolia
Erenhot, Xilin Gol, Inner Mongolia
Dantu, Zhenjiang, Jiangsu
Yunan University Campus, Yunnan, Changgong

Aljazeera has a related report on the questionable growth numbers and the impending real estate bubble. Best quote: “You can’t really move to a city with no economy…”

More reports from other news outlets:

BBC: Work stops on Chinese ghost town
Amazing satellite images show cities meant to be home to millions lying deserted
Photo Gallery – Ordos, China: A Modern Ghost Town

{ 53 comments }

Grant April 10, 2011 at 5:33 pm

“The government should intervene.”
“Owning a home should be a basic human right.”

Right.

“If I talk about it I will get in trouble.”

Shocking.

Shay April 11, 2011 at 1:33 pm

It’s too bad he doesn’t realize that his government is the cause of his living conditions in the first place.

Matt R. April 10, 2011 at 7:47 pm

So the Mises Institute won’t be opening a bookstore here?

ZvonkoM April 10, 2011 at 8:56 pm

This is just an extreme example of what all governments do.

Ned Netterville April 10, 2011 at 9:01 pm

Looks a lot like the economic recovery here.

King George April 10, 2011 at 9:15 pm

“The government should intervene.”

Isn’t that what caused the problem in the first place?

Ryan S April 10, 2011 at 9:28 pm

No, it was unfettered greed and capitalism.

John James April 10, 2011 at 11:47 pm

My troll-y sense is tingling…

Tyrone Dell April 11, 2011 at 12:04 am

LOL

Junk Science Skeptic April 10, 2011 at 11:11 pm

Given the near certainty that the average family in China is no more than three people (one child per family policy, do the math), if you assume no single adults (a stretch), a country with 1.4 billion inhabitants and 64 million vacant apartments works out to a maximum vacancy rate of 13.7%, which is high, but not terribly so in a country that is moving from an agrarian economy to an industrial economy. Given the likely direction of China’s average household size, that vacancy rate is probably closer to 7% +/-, not out of the ordinary in the apartment rental biz.

J. Murray April 11, 2011 at 6:02 am

Chinese families are much larger than 3 per household. It’s common for them to live with extended families. 7 members is a better point of comparison to get an idea of the vacancy rate, or around 32%. Chinese families don’t earn enough to live in 3 per household families. And that’s just the apartment system. Start factoring in entire empty comercial buildings and industrial buildings and things really look bad. I’m also wondering if that number includes single family homes as well.

Junk Science Skeptic April 11, 2011 at 12:02 pm

7 per household is likely correct average in the countryside regions that younger people are moving away from, but in the current and ready to be occupied urban areas, I’m of the opinion that the average is/will be under 3.

Even if we split the difference and call it 5 per household across the urban/rural spectrum nationwide, you’re still looking at a vacancy rate that isn’t unheard of in an otherwise normal bad rental market.

Yes, they have overbuilt in China, and it will take about 3-5 years to absorb that capacity.

On a positive note for the rest of the world, China’s construction slump will reduce their demand for oil at a time when the rest of the world desperately needs the upward pressure on energy prices to soften. Their slump will also soften construction material prices, which were getting out of sight in the West prior to the crash.

Horst Muhlmann April 11, 2011 at 9:09 am

If the first child is a girl, you can try again. The Chicoms now call this the “1.5 child policy.”

Just as dumb, but that will affect your numbers somewhat.

Cross Examination April 14, 2011 at 10:48 pm

I smell a rat. Here is “the math” using the statistics stated above:

[(1.4B people) / (~3 people/family)] = ~466M families

[(~466M families) * (1 dwelling/family)] = ~466M total dwellings in China

[(64M vacant dwellings) / (~466M total dwellings)] = ~7% Chinese dwelling vacancy rate

However, 1 dwelling per family is extremely unlikely. The BBC report above detailed a situation in which a married couple shared an apartment with more than four single adults. Based on the remarks of the Chinese social scientist, I would not expect the situation reported by the BBC to be an isolated case.

Furthermore, not all dwellings are apartments (http://www.jchs.harvard.edu/publications/international/w05-7.pdf). Decreasing the total number of apartments would drive the apartment vacancy rate up.

In addition, the US apartment vacancy rate over the last 15 years has risen from roughly 11% to 15%. Yet economists have not been raving about an impending US housing bubble due to rental property vacancy rates. I would be surprised if a 13.5% (much less 7%) apartment vacancy rate in China is cause for concern while the US rate has hovered close to 15% for the last couple years. http://www.census.gov/hhes/www/housing/hvs/charts/files/fig02.pdf

I have additional doubts as well…

Tiffany April 10, 2011 at 11:37 pm

I’m skeptical of the sincerity of the fellow who said “the government should intervene.” He had a pretty smug grin on his face. He may have been sarcastic – spewing party doctrine like a good little citizen.

Micah April 11, 2011 at 1:09 am

That was a pretty strange face to have. I’d expect a more frustrated, downtrodden expression. Good catch.

John James April 10, 2011 at 11:41 pm

Jeff Tucker blogged about this back in 2009. He linked to a 15 min documentary that followed the story of the largest mall in the world.

And Robert Blumen had a series of posts on the Chinese ghost town phenomenon even before that.

nate-m April 11, 2011 at 12:32 am

What is hilarious is that there are so many people scared that China will become dominate economic power in the world due to their organization and central planning.

When in reality it’s their central planning that is holding them back. If the people were left to act under their own volition then they would surpassed us years and years ago.

Our increasing lack of competitiveness, in the USA, is not that manufacturers in China have near-slavery workforce and thus can produce goods cheaper…. or that China is manipulating the currency markets…. ,but that probably 60-70% of our economic development is absorbed by regulation, government spending. When you combine that with economic mismanagement by our corporatist/government psuedo-economic-fascist structure we are dooming ourselves.

Our government is destroying us and any success that China enjoys is _despite_ the central planners… not beause of them.

John James April 11, 2011 at 12:51 am

there are so many people scared that China will become dominate economic power in the world due to their organization and central planning.

I call shenanigans. Who in the world ever suggested that?

nate-m April 11, 2011 at 1:00 am

Hrm. You don’t watch CNN or any other mass media do you?

People like that tend to crow on and on about USA trade deficit and the amazing power of their tightly controlled economy.

Ken April 12, 2011 at 9:31 am

Friedman, Thomas, one each.

killy April 11, 2011 at 12:55 am

This is a classic Free Market Bubble driven by coporate speculation. It is true, the chinese government manipulates interest rates (who does’nt) but no one is forced to build as would be the case in a command economy. Wake up and smell the coffee Mr. Mises, the cold war is over.

Daniel April 11, 2011 at 1:22 am

You win at fakeposting

John James April 11, 2011 at 1:23 am

jeez the trolls are just coming out of the woodwork today aren’t they

Daniel April 11, 2011 at 1:42 am

You FOOL don’t you realize free markets need a central bank to permeate the market with a single medium of exchange with monopoly privilege on settings interests rates

And greed was invented in 2003

niku April 11, 2011 at 2:43 am

The inevitable results of capitalism: American ghost cities.

Even entrepreneurial plans fail. Fancy having to tell that on mises.org!

nate-m April 11, 2011 at 3:41 am

Even entrepreneurial plans fail.

Of course they do. That’s part of the point. People have all sorts of ideas and they put lots of effort into them. Sometimes they fail, sometimes they succeed.

The resulting profit/loss from such enterprises tells you if your doing a good job or not. If you make money your doing a good job.. The more profits you make the more desirable and needed your project is. High profits indicate higher desirability by society. It shows that your fulfilling a need and demand that society is previously lacking. Entrepreneurial successes also breed competition and more successes since high profits will attract more and more business. This will continue to evolve until the groups that are most able to provide the most efficient way to fill the societal need are able to continue to profit despite the high levels of competition. When societal needs in a particular market are efficiently filled then the entrepreneur eventually loses interest and moves on to fulfill some other societal need in the pursuit of high profitability.

When entrepreneurial plans fail to achieve profitability then that indicates that the entrepreneur made a mistake in judgement. Either he misjudged the market and is trying to fulfill a demand that is non-existent or he is failing to do so in a efficient manner. The losses the entrepreneur sustains is used as a indicator by other people in the market place that whatever he/she is doing is probably not a good investment.

As human beings we lack the foresight and knowledge to be able to always predict future demand accurately. It does not matter if we are acting as individuals or groups of individuals. State government is not any more smart or insightful then any other large group of people.

With capitalism society has the ability to accurately account for resources via money accounting and has a very effective feedback loop through the nature of profits/losses. Also with capitalism when a venture fails it only consumes the resources of the individuals that invest in it. They and their investors are the only ones liable. Thus while failures are isolated, relatively, then society in total still benefits as a whole from the successes of business.

In order to compare and contrast this with a socialist state you need to realize that with centrally controlled economic policies the people who make the decisions are isolated from the consequences of those decisions. They have very little to no personal liability in the decisions that they make and the fiat money schemes that they favor invalidate any sort of profit/loss feedback and ruins the accuracy of accounting. Also it’s the country as a whole that takes the risk and assumes the liability for the decisions of it’s leaders. Without the profit/loss feedback loop and ability to accurately account for the actions of state government then poor decisions will result in much larger economic damage and be far longer sustained then is typical in a capitalist economy.

Just to head off any argument: With the USA economy the corporatism (collusion of state government with large business), centrally managed banking system, and fiat money schemes have put USA society at a severe disadvantage. We are no longer able to properly gauge the effectiveness of economic policies and business decisions. In addition to that it shifts the liability of large corporate decisions from the investors and owners of these large businesses to society in general through government debt, taxation, and inflationary policies. As a result we are in world of shit and we do not live in a truly capitalist society.

From your two sentences you not only show your ignorance of what is being described on this website, but of the purpose and effect of entrepreneurship.

niku April 11, 2011 at 4:55 am

I agree with all but the last paragraph.

My point was that the “ghost cities” do not indict central planning per se. There are ghost cities all over the world. [Wikipedia] A proper argument would be something like: “finished cities lie vacant since their construction x years ago, and yet, others just like them are still being constructed”.

Did “ghost towns never inhabited” occur in the Soviet Union? Why did it take an “American recession” for the “inevitable” to happen? (In general, in what conditions does the “inevitable” manifests, and why does it not happen in Capitalism?) Could it be that it takes some years for these cities to be inhabited, and with many such cities being built every year, a large number will be necessarily “ghost” for the time being? (This is what a commentator suggests [Foreign Policy])

Seems to me that the most extreme argument here would be of the wasteful expenditure of other people’s money. If not, the Central Bureau would just send a directive to all departments to be “extra careful” in building cities, whereby, just by not taking risks, they will shame the Western propagandists who predict “inevitability”!

“You can’t really move to a city with no economy…”

takes the cake though. Does the author suppose that the central planners are idiots?

nate-m April 11, 2011 at 6:09 am

Does the author suppose that the central planners are idiots?

They certainly seem like idiots. Our only choices here are incompetence, maliciousness, or a combination of both.

Could it be that it takes some years for these cities to be inhabited, and with many such cities being built every year, a large number will be necessarily “ghost” for the time being?

With nobody inhabiting them there is nobody there to take care of them. They are going to deteriorate rather rapidly and/or require huge costs to maintain. Basically as long as they exist they are costing money, unless they are abandoned entirely. The longer they remain empty the higher burden they place on the economy.

It’s pretty obvious that most of these cities are never going to be fully populated. More then likely they will end up being destroyed because they deteriorate to the point of being dangerous and will be recycled in order to be rebuilt. Many of them will never be rebuilt. It probably will never make sense to build cities were they are.

China is not the first country to do this, of course. Socialists have built many useless cities in the past in different nations. What is remarkable is just the size and scope of the wastefulness and uselessness of these cities in this particular case. We are witnessing the beginning of the end for China’s current economic success. They are going down and they are going to hit hard.

just by not taking risks, they will shame the Western propagandists who predict “inevitability”!

They may learn from their mistakes. Just like they learned when they tried to manage agriculture and food distribution in a way that caused a few tens of millions of people to starve to death.

Seattle April 11, 2011 at 9:27 am

If not, the Central Bureau would just send a directive to all departments to be “extra careful” in building cities, whereby, just by not taking risks, they will shame the Western propagandists who predict “inevitability”!

And the central planners know which expidentures are risky and which are not… how?

Does the author suppose that the central planners are idiots?

Yes.

niku April 11, 2011 at 10:22 am

And the central planners know which expenditures are risky and which are not… how?

In the extreme case, they can simply not build new cities. Thus, they will escape the blame of “inevitability”.

nate-m April 11, 2011 at 12:27 pm

The lack of accountability will just manifest itself in some other horrific example.

The only way to avoid doing this is for the state to stop doing at all and that would suite me just fine.

coturnix19 April 11, 2011 at 3:24 pm

Not build cities… but that’s the whole point! They should not build cities, neither do other planning stuff. But if they stop doing anything, their malevolence and redundancy will become obvious. That’s why they keep on wasting resources and doing stuff just to look legitimate.

Sprachethiklich April 11, 2011 at 9:43 am

But niku performed a search on wikipedia and crafted a syllogism. Are you saying wikipedia and syllogisms are wrong?

Anthony April 11, 2011 at 10:04 am

niku,

It is not necessary that the central planners are idiots. Outside of a competitive marketplace it does not matter how smart or altruistic a person is… they do not and cannot have enough information to make proper economic decisions. Without profit and loss signals there is no way to know if your plan is working and there is no way to know if you are making efficient use of resources. This is the key to Mises’ argument against socialism.

We can assume that the central planners are genius saints with perfect motivation and it does not affect the fundamental point it is only possible to make sensible economic decisions in the context of a functioning market.

p.s. it is impossible to act without taking risks… all action involves risk and speculation, whether the action is by a government or by a business.

niku April 11, 2011 at 10:36 am

I agree with all you say. My argument was only about claiming inevitability of producing “ghost towns”.

I agree that it is impossible to act without taking risks. But we can nevertheless contrive to avoid a particular sort of risk.

Israel Curtis April 11, 2011 at 10:17 am

actually, that quote isn’t by the author – it’s a quote from one of the people interviewed in the video…

I’m sure the patriotic citizens would never think such thoughts about their great leaders…

niku April 11, 2011 at 11:06 am

it’s a quote from one of the people interviewed in the video…

That puts the quote in a different light. I thought that the quote is a journalist’s summing-up-opinion in the AlJazeera article, which you were quoting approvingly.

Inquisitor April 11, 2011 at 12:13 pm

“takes the cake though. Does the author suppose that the central planners are idiots?”

What would you call them? Idiot doesn’t necessarily mean lacking in intelligence.

niku April 11, 2011 at 9:17 pm

“You can’t really move to a city with no economy…”

It would be wrong to assume that you have to point this out to the Planners. It is another matter to claim that “it did not work out as planned”.

Inquisitor April 11, 2011 at 12:23 pm

“Seems to me that the most extreme argument here would be of the wasteful expenditure of other people’s money. If not, the Central Bureau would just send a directive to all departments to be “extra careful” in building cities, whereby, just by not taking risks, they will shame the Western propagandists who predict “inevitability”!”

“Extra careful” like the Republicans and Democrats on the budget, I suppose, arguing over minuscule cuts in a deficit ranging in the trillions. They have no incentive to be “extra careful” and even if they did, they have no way to rationally calculate economically where to divert funding for capital and where not in a way that isn’t entirely arbitrary. Of course, they can “do nothing” and not take risks, that’d be ideal. Would that it were so with all States.

niku April 11, 2011 at 9:40 pm

Now you cannot caution them to be just careful; they are always as careful as possible, actuated by self-less love of others, blessed with boundless wisdom, and so on. They’ve got to be “extra careful”, henceforth!

However, by “not taking risks”, I was thinking of “not building new cities”. “Extra careful” here would be a euphemism, just a wink to the bureaucracies to indulge in their genetic sloth.

niku April 11, 2011 at 10:36 pm

Btw, bureaucrats are slothful independent of their bureaucracies. So, to keep on mindlessly building cities would be slothful for the bureaucracies, but not to the bureaucrats. The bureaucrats would rather sleep.

Dick Fox April 11, 2011 at 9:32 am

Believing in a real estate crisis in China is totally to misunderstand China. These ghost cities were build just as intended. They are not based on debt but on government malinvestment, but in this case the malinvestment is not accidental but intentional.

China is still fighting the population growth war of years past. They believe that population growth will make it necessary for such cities and so they are building in advance of the demand, intentionally.

This is a huge mistake by the Chinese government and a colossal waste of resources. But it will not create a debt crisis because it is not based on debt but on wasted resources.

This is indicative of why China will grow slowly and why it will not reach its full potential, but to assume a western style economic crash like the US crash of 2008 is to totally misunderstand.

nate-m April 11, 2011 at 12:40 pm

China is still fighting the population growth war of years past. They believe that population growth will make it necessary for such cities and so they are building in advance of the demand, intentionally.

Well that would make sense except that is not really a true statement when you examine closer what is going on.

China has massive housing demands _right_now_. They have had massive housing demands for decades. Their entire population is screaming about the need for housing… yet they cannot get anybody to actually live in these cities. They have a situation were 3-4 families living in a house that is roughly the size of a 2 bedroom American apartment is normal. And every single of those people are dreaming of a house or a apartment of their own. Yet they are not able to get these people into houses 20-30 miles down the roads that are empty and huge.

And on top of that most of these places were already being used. They were being used by villagers and farmers. That land those empty cities are built on were probably actually productive until it was seized by the government. I suspect that many of these cities effectively destroyed much of the land’s true value in those areas.

This shows you just how bad of a job they are doing. Many off these cities will never have a significant population living there regardless of housing demands.

Ned Netterville April 11, 2011 at 9:48 am

Chinese Americans and ex-pats in the US, like immigrants from many other nations with strong family support systems not-yet-diluted by America’s culture of government dependency, excel in US secondary and university classrooms. Let us hope that Mises.org’s growing influence on campuses here (and abroad) will inspire some of the brightest to explore the requirements and advantages of freedom, which are revealed under the influence of Austrian economics.

Jim P. April 11, 2011 at 5:55 pm

Once when I was visiting North Carolina, someone told me about a place called, ironically, Soul City. If you want to see a small example of what a government planned community looks like – check it out if you’re ever in the Raleigh area. An hour and a half there, walking and driving around, made quite an impression on me.

On paper, it is “shovel ready.” It has everything a city should need. There are wide roads, buildings to live in, buildings to work in, buildings to worship in, a school, railroad and highway access, a water plant, a post office, and lots of land. But it is eerie, dead, deserted and badly maintained. This is what the result is when Politicians convince themselves to be gods – they speak it into existence, make it look like a real city, and watch it magically flower into life. Except it doesn’t. It is about as plausible as me trying to create a living rhinoceros because I saw one in the zoo once.

And, as one might expect of the poor carpenter whose only tools are a hammer and a crowbar, the only prosperous business in the town is the Warren County Correctional Institution, which apparently purchased one failed modest sized factory and put a fence up around it. There is something a little too Soviet there for comfort.

J Cortez April 11, 2011 at 6:54 pm

Wow. Central planning fail.

Dave M April 11, 2011 at 11:14 pm

I have allways said the much touted economic miracle of China is a facade. Their chief export is cheap labour, in some cases slave labour. They have to continue building cities and bridges and railways even though there is no demand for them, hoping that the western economies recover and they avoid massive unemployment.
Time is running out as the US is rapidly, and deliberately, debasing the dollar. The US treasury notes they hold are like a kid holding a monsterous ice cream cone on a hot July day. If you don’t hurry up and eat it it will end up melting away….so the Chinese are trying to burn up the US debt they hold while they still can.

The west will dispose of them like a mouldy dishrag now that we have such a huge trade deficit. We are allready courting India to be the next source of cheap labour now that China is starting to feel it is a world power.

Ned Netterville April 12, 2011 at 9:22 am

Jim P.’s description of Soul City as “eerie,” reminded me of the same feeling I had just driving through Oak Ridge, Tennessee, a federal-government town at birth and to this day. I had no inclination to stop for awhile and see “what’s up,” as I do in most small American towns I drive through. Knowledge of what government gave birth to in those Tennessee hills made my blood run cold and I was mighty glad i was just passing through. http://en.wikipedia.org/wiki/Oak_Ridge,_Tennessee

niku April 12, 2011 at 11:00 am

If I were a Chinese Central Banker, I would call for a meeting of all my international Banker buddies, where everyone would come with the note numbers (figuratively speaking) of all the US Dollars they hold. Then, we will declare that henceforth only these notes would be considered valid, the rest are junk paper.

(1) The value of these “international dollars” will rise, as, for one, the US would have to buy it to pay for its imports. In one stroke, we will change a ticking bomb to a gold mine.
(2) The supply is guaranteed to remain the same, hence, it would be “inflation proof”.
(3) The influence of US would decrease; let them print as many dollars they want, who cares!

Why has it not already been done?

newson April 12, 2011 at 8:42 pm

chanos on chinese real estate bubble:
http://www.youtube.com/watch?v=POGX8_UDhh4&feature=related

Ned Netterville April 15, 2011 at 10:40 am

Thursday’s FT Headlines include: “China first-quarter GDP grows by 9.7 percent!” Sounds like one of those Soviet reports of more amazing results from yet another brilliant 5-year plan. Deserves the same amount of credibility. Of course American socialists and their apologists, especially in academia and more particularly in the Econ Departments of elite universities inhabited by Keynesians, right up to the time when the Berlin Wall fell, the Soviet empire imploded, and the truth that Soviet Union economies were all on life support, bought those lies hook, line and sinker. The eyes of our intelligentsia were finally opened some sixty-seven years after they could have known it was all lies if they had only read Mises’ book, “Socialisim,” back when it came out in 1920. The basic differences between the “success” of the Soviets then and the Chicoms now is that the Chinese government has borrowed more heavily from capitalism to save its economy, and the lies it tells are somewhat bigger.

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