Tag Archives: Megacities

Bloomberg Agrees: Chinese Cities Not XXL Enough

In an excellent article, Bloomberg highlights a glaring contradiction in China’s recent “New Urbanization” plan. The plan calls for a number of wide-ranging reforms in land reform, labor migration policy, urban planning and local government finance in order to fuel another decade of economic growth, in a more sustainable way.

But at the same time, the plan continues a long standing national policy of trying to steer growth away from the megacities of Beijing, Shanghai and the Pearl River delta in favor of small and medium-sized cities. It’s an understandable impulse – it seems natural to want to spread growth around the country, and boosting smaller cities would pull some of the pressure off the housing, transport and environmental pressures the big cities are fighting.

But it’s a mistake. The reason people are still flocking to the big cities in spite of those problems is that’s where the opportunity is. China’s (and every nation’s) biggest cities are also the disproportionate drivers of growth and innovation. The World Bank/State Council Development Research Center report behind the New Urbanization plan concluded that China was giving up significant economic growth by limiting the size of big cities. And while big cities’ environmental challenges are equally big, it’s much easier and more efficient to deal with them in concentrated form than spread all over the country. Beijing, Shanghai, Guangzhou and Shenzhen are enormous – but comparing China to other nations, you would expect them to be even bigger. There is a strong suspicion that an important reason why China’s leaders still try to channel urbanization to smaller cities is the tremendous sums that have been spent there on new urban districts that need residents and commercial tenants.

The examples of Tokyo and Seoul show that huge, very dense cities can still support a very high quality of life and environment. Instead of trying to cap its big cities, the State Council should be leading the effort to improve them.

I discuss these same issues at greater length (and, I hope, depth) in an upcoming article in Planning Magazine.

Ghost Stories

The media loves China’s ghost cities!

September 21, 2013: China’s Ghost Cities… Are Multiplying

September 24, 2013: China’s Ghost Cities May Not Be So Spooky

September 25, 2013: China’s Ghost Cities Not So Ghostly After All?

May 16, 2014 China’s Ghost Cities to Get Spookier

May 18, 2014 Who’s Afraid of China’s Ghost Towns?

June 10, 2014 China’s Most Famous Ghost City Got Even Worse in the Last Four Years

…although people seem a bit confused about exactly how, er, spooky they are. If you’ve been to one of them, the answer is easy: very spooky. Walking around a giant new development, full of fresh concrete but devoid of traffic and people, is strangely unsettling. But this is one instance in which your gut instinct that something is very wrong, might be wrong.

Aerial of Kangbashi district, Ordos 鄂尔多斯市康巴什新区鸟瞰图(Google maps, 2014)
Aerial of Kangbashi district, Ordos 鄂尔多斯市康巴什新区鸟瞰图  You can see that while it may not be the ghost city it was (compare photo from 2009 at top of post), it’s not exactly bustling. (Google maps, 2014)

These places definitely exist. The question is, how many ghost cities are just new areas that will gradually fill in and take on life, and how many are colossal monuments to waste and fraud? The good news is that two recent studies have added a new level of rigor to the reporting, which previously has tended to be a more or less informed version of, “Wow, there are no people here!” The bad news is that even with the new data, it’s still not clear how big a problem ghost cities really are for China’s economy.

The two reports provide badly needed primary research on the conundrum of China’s real estate markets. The first, from real estate brokers CLSA in Hong Kong, looked at over 800,000 units in 12 cities. I haven’t been able to find the original report, but CNBC reports:

It estimates China’s vacancy rate at around 15 percent of property completed in the past five years… Among housing over five years old, units smaller than 90 square meters (968 square feet) and tier-one housing, the occupancy rate exceeds 88 percent, CLSA said…

While China’s vacancy rates may appear high compared with international standards, such as the average 10 percent rate in the U.S., oversupply is uneven, CLSA said. Tier-one cities’ vacancy rate is just 10 percent, while the rate is around 16 percent or higher in tier-three cities, it noted.

These results are further evidence that the Tier 1  markets of Beijing, Shanghai and the Pearl River Delta are in a completely different situation from smaller cities. CLSA’s Nicole Wong was quoted in other articles above saying that they see the primary danger of “ghost cities” as coming from tier three cities with much weaker overall demand. The overall picture it paints is that the ghost cities problem is real, but confined to specific smaller city markets.

Unfortunately the China Household Finance Survey at the Southwestern University of Finance and Economics is not nearly as reassuring. In a June 10 speech in Beijing Survey leader Li Gan estimated that the survey, which canvassed 8,400 households from 2011-2013, found much higher vacancy rates: 22.4% for all urban housing, and very troubling 23.3% for affordable housing. If so, there are serious problems in the housing development industry which can’t be explained away by focusing on particular sub-markets.

Like everyone else, I’d like to know which of these two pictures is the right one. Is China is wasting billions of yuan in investments that nobody can use, and amassing huge levels of debt in the process? Or will the additional 10 million new urban residents expected by 2020 make all of this moot? Or both?