I have always thought China’s ghost cities were overrated in terms of their economic importance/significance. The anti-China crowd loves to point at them as proof of China’s inefficiencies and evidence of an eventual and certain economic downfall. Yes, they do evidence inefficiencies, but so what? Go to even the most well functioning economy and you will see pockets of inefficiencies and abandonment. I went to Toledo Ohio during economic boom times (was it 2006) and was shocked at its downtown, which felt at least half vacant. Would it have been fair for me to use that as proof of America’s downfall? Of course not.
Isolated instances of inefficiencies do not an economy make. Yes, ghost cities make for good symbols, but unless you can quantify their numbers and their impacts, I just don’t care.
I now have even more reason for not caring. The Wall Street Journal’s always excellent Real Time Report just came out with a story, entitled, Analyst: I Ain’t Afraid of No ‘Ghost Cities.’ The Real Time story is on an article [no link given nor found] by “economist and veteran China-watcher Jonathan Anderson” entitled “Hurray for China’s Ghost Cities.” In that article, Anderson writes on how China’s investing in “’ghost cities’” to underpin growth, China saved itself from even more unwise overinvestment in areas that could have done lasting damage to the economy, such as manufacturing.”:
Even though China has been investing almost 50% of GDP for the past few years, Mr. Anderson doesn’t see much evidence that it’s resulted in widespread industrial overcapacity. He notes that industrial profits have been picking up along with sales, suggesting that manufacturers still have plenty of pricing power. And, in contrast to the situation a decade ago when the last credit bubble burst, China isn’t saddled with a massive glut of industrial commodities that it’s trying to dump on the rest of the world. Steel exports, for example, have increased only modestly this time around.
Mr. Anderson defines “ghost cities” as a relatively narrow slice of investment, conducted mainly by local governments, in urban infrastructure and certain types of construction, notably subsidized “social housing” units rather than commercial housing. They’ve certainly been a black hole, he says, but a hole that has emptied largely into the equally dark vaults of China’s state-owned banks, where bad debts can remain buried for a long time.
“Lesson learned: If you’re going to waste capital best to waste it completely, where it will do the least damage to everyone else,” writes Mr. Anderson.
Makes sense to me.
Is China heading for economic failure or success. Me, I have no clue, but I am pretty confident that looking at ghost cities for the answer is looking at the wrong tea leaves.
What do you think?