"Enough empty floor space to cover Madrid": so why are China's ghost cities still unoccupied?

Ghengis Khan Plaza in Ordos, Inner Mongolia, in 2011. The near-empty city is designed for 1.5m people. Image: Getty.

Over the past 15 years China has built hundreds of new cities, expanded thousands of urban areas, wiped over a million villages off the map, and urbanised hundreds of millions of people. It’s a development boom that’s incomparable to anything that any other country has ever attempted.

Led by its national urbanisation plan, China has transitioned from a mostly rural country of peasant farmers to one that is defined by its cities. But this urbanisation drive has produced a peculiar side effect: newly built urban areas, even completely new cities, that entirely lack people.

Enough floorspace to cover Hong Kong twice over is being constructed in China’s cities each year. Yet despite the fact that 250m more people are expected to move into cities by 2030, and even though the demand for modern housing is huge, an incredible amount of apartments are currently vacant. At a rough estimate, there are around 600m m2 of floor space still unoccupied – enough to completely cover Madrid.

So – if so many people need homes in China’s cities, then why are there so many of them left empty?

An empty street corner in Nanhui, near Shanghai. Image: Wade Shepard.

1. They’re not actually finished yet

Xinyang, Yujiapu, Erenhot, and many other new developments across China were still very much construction sites when the international media labelled them as “ghost cities”.

Construction on Ordos Kangbashi, in Inner Mongolia, began a mere five years before Al Jazeera arrived and derided the place as a being a ghost town that nobody lived in. The network later claimed the city was little more than a plot by local officials “hell-bent on boosting their regional GDP – often a criteria for their promotion”.

A year later Business Insider would publish a collection of satellite images of what they dubbed China’s ghost cities, but from even a lay analysis it was clear that most of them were still construction sites. Obviously, not many people are going to live in a place that isn’t built yet. 

2. They were built too early

Almost by definition, new cities tend to be built in areas beyond the fringes of existing urbanisation. Without this broader support infrastructure it is a major political, economic, and social project to break the inertia and make them come to life.

While China has means of doing this — such as by moving universities, government offices, and state owned enterprises into new areas — it is still a long term process. China’s new cities are not being built for today or even tomorrow, but decades from now.

Generally speaking, most new large scale urbanisation initiatives are run on 20 year time scales. That’s the time between when construction begins and when it is projected that they will be fully populated. Hardly a single new city in the country has yet eclipsed its developmental deadline.

A new building in Ordos city centre in 2011. Image: AFP/Getty.

3. They were built to encourage land sales

China’s urbanisation program is pushed into motion by a fiscal policy that all but requires local municipalities to expand in order to remain economically solvent. According to the World Bank, China’s cities must fend for 80 percent of their expenses, while only receiving 40 percent of the country’s tax revenue.

Many municipalities use land sales to make up the difference. They buy land on the outskirts of cities at the low rural rate; rezone them as urban; then sell it on to developers at the high urban construction land rate.

The profits are huge. The Ministry of Finance claimed that land sales raised $438bn for China’s local governments in 2012 alone. Corruption and errant spending aside, this money is often essential for sustaining urban infrastructure, funding public institutions and facilities, and various other social programs.

So when cities expand beyond their current needs, it’s all too often an inevitability of China’s fiscal framework.


4. Developers must build immediately 

There’s another twist in China’s urbanisation process that’s driving the creation of urban infrastructure in areas still ill-prepared to support it.

The prevailing notion among developers is that they need to get in early to make a profit. This means buying new urban construction land directly from local governments as soon as it’s made available.

All too often this is land is located in new development areas that lack any semblance of urbanisation – sometimes, areas that don’t even have a population. But developers in China are not permitted to just sit on plots of land and wait for the area around it grow. No, if they wish to purchase this land and “get in early”, they must build something on it almost immediately.

In the initial development stages this often translates to cities being built in the proverbial middle of nowhere. But as developers of residential property take out 72 year leases on the land, and new buildings in China often only have a lifeline of 30 to 35 years, this means that they should have at least two shots at building something to recoup their investment.

In other words, all too often, what we see in the new urban China are essentially rough drafts of what will these places will eventually become.

5. The chicken-or-egg scenario

Nobody is going to move into an area that lacks civic essentials: health care, schools, functioning shopping centres, places to work, and public transportation. And yet, local governments and businesses are hesitant to produce these things in areas where there are no people.

So while the Chinese will buy property in new development areas where there isn’t yet an economic or social pulse, few will actually move in until it starts to show some convincing vital signs.

An empty mall in Zhengdong Zhengzhou. Image: Wade Shepard.

6. The housing that’s bought by people with no intention of living in it

The first wave of residential properties that are often built in China’s new urban developments are what are called “commodity homes”. These is privately-owned homes, at the mercy of the market, and prices can fluctuate based on supply and consumer demand. With the craze of home buying that has swept the country in recent years the price of this type of real estate has soared, often well beyond the means of most Chinese.

Up until very recently, China’s housing market was loaded with speculators, people looking to store their excess savings in real estate, individuals aiming to launder illicitly received funds, and other parties who were buying property they had no intention of living in. This feeding frenzy of economic activity often pushed the prices of real estate so high that the pool of potential residents was severely reduced.

This has lead to many cities and districts across China standing largely empty, even when all the houses have sold. As a result, they look like ghost towns.

Having masses of readily available home buyers has kept development profitable and the wheels of China’s new city building movement spinning. But it’s also derailed efforts to build population bases in many new urban areas, and it’s subsequently come to be seen as a social, political, and economic problem.

The various levels of government in China have moved to correct this: initiating policy aimed at limiting speculation, inhibiting the ownership of multiple properties, curbing the buying of property with the spoils of corruption, and creating alternative investment options, so the general population no longer feels as compelled to keep their wealth in real estate.

The result of all this has been that property values in some areas have fallen, or at least levelled off. That’s made housing more accessible to a wider swath of the population in new urban areas.

But the impact of the free-for-all era still lingers in the empty streets of many new cities and towns across the country.

7. The housing that’s bought for the future

In a similar phenomenon to the above, many Chinese buy new properties for future use: homes for their children to live in when they get married, or as a retirement home for themselves or their parents. There are 13m weddings per year in China, and newlyweds make up one third of all new home purchases. Many of these homes are purchased far in advance of their actual need.

New homes in new development areas are often purchased with the understanding that the neighbourhood – or even the entire city – is a work in progress that won’t really be ready for habitation for a long time. New home buyers rarely plan to move in hastily – something that’s exacerbated by the fact that a huge portion of new apartments that go on the market are just concrete shells, which the buyer needs to fit out.

So even when new owners do want to move into a new home as soon as possible, the minimum amount of time needed to do so is often measured in years.

A lone pedestrian walks past the statue of Ghenkis Khan in Ordos's central square. Image: AFP/Getty.

8. There’s a shortage of “Economically Affordable Homes”

The other type of residential property in China is called “economically affordable homes” (baozhang xingzhu fang): housing that is subsidised by the government and has strict controls on the initial sale, and subsequent resale, price. These houses are meant for low or middle income people who actually intend to live in them, not wealthy investors looking to spin a profit.

But because new economically affordable housing can only be sold for 3-5 percent over the cost of construction, local governments and developers are often not too keen on building much of it. As of today, this type of housing only comprises only about 3 percent of the new housing being built in China – although according to China’s new urbanisation plan, this figure is set to rise to 23 percent.

Economically affordable housing is often one of the last elements to be added to large scale new city projects – yet another reason these places often have a deficient population for extended periods of time.

9. Local government just isn’t ready to support a mature population

Building new urban areas is a major financial boon for local governments. Land sales bring in massive profits and the puppet companies they set up to obtain loans bring in huge piles of cash.

But when people begin moving into these new urban areas they start costing local governments money. All of a sudden there needs to be things like hospitals, schools, and public transportation, and services like health care and welfare.

So there is often an extended delay between when a new development appears to be a city, and when it actually has the infrastructure to support a population. As a result, these places linger in what could only be called the ghost city phase.

A lone cyclist in Xinyang. Image: Wade Shepard.

Conclusion: the ghosts of cities yet to come

Not every mining city can successfully be transformed into the next boomtown. Not every blank canvas of countryside can be painted with an urban landscape. But, given enough time, most of China’s new cities and towns will develop sufficiently to become real urban entities.

Zhengdong New District was one of the places featured in 60 Minutes’ 2013 report on the Chinese real estate bubble. But between 2012 and 2014, according to Standard Chartered Bank, the city’s occupancy rate doubled. Meanwhile the populations of other oft-mentioned “ghost cities” like Zhenjiang’s Dantu and Changzhou’s Wujin grew by two to four fold.

You can see similar developments with Guangzhou’s Zhujiang, Shanghai’s Pudong central business district – China’s original ghost city – as well as hundreds of other smaller, more inconspicuous new towns and urban expansion projects across the country.

There are a number of explanations regularly offered for China’s scantly inhabited new urban areas: excessive government spending, bankruptcy, over-supply, waning consumer demand, nefarious plots to boost GDP. While these elements are certainly all parts of the equation, they’re not the whole reason why, in the world’s most populated country, there are cities devoid of people.

Look out across the vast expanses of China’s new cities and towns, and you can see an urbanisation initiative like the world has never seen before, something which is unique in and of itself – and which is vastly more complex than any story a snapshot of vacant high-rise apartments can tell.

Wade Shepard is the author of "Ghost Cities of China".

 
 
 
 

Why the Land Registry sale is a terrible idea

Image: Getty.

Britain’s family silver is all but gone. Sale after sale since the 1970s has stripped the cupboards bare: our only assets remaining are those either deemed to be worth next to nothing, or significantly contribute to the Treasury’s coffers.

A perfect example of the latter is the Land Registry, which ensures we’re able to seamlessly buy and sell property.

This week we learned that London’s St Georges Wharf tower is both underoccupied and largely owned offshore  - an embodiment of the UK’s current housing crisis. Without a publicly-owned Land Registry, this sort of scandal would be much harder to uncover.

On top of its vital public function, it makes the Treasury money: a not-insignificant £36.7m profit in 2014/15.

And yet the government is trying to push through the sale of this valuable asset, closing a consultation on its proposal this week.

As recently as 2014 its sale was blocked by then business secretary Vince Cable. But this time Sajid Javid’s support for private markets means any opposition must come from elsewhere.

And luckily it has: a petition has gathered over 300,000 signatures online and a number of organisations have come out publically against the sale. Voices from the Competition and Markets Authority to the Law Society, as well as unions, We Own It, and my organisation the New Economics Foundation are all united.

What’s united us? A strong and clear case that the sale of the Land Registry makes no sense.

It makes a steady profit and has large cash reserves. It has a dedicated workforce that are modernising the organisation and becoming more efficient, cutting fees by 50 per cent while still delivering a healthy profit. It’s already made efforts to make more data publically available and digitize the physical titles.

Selling it would make a quick buck. But our latest report for We Own It showed that the government would be losing money in just 25 years, based on professional valuations and analysis of past profitability.

And this privatisation is different to past ones, such as British Airways or Telecoms giants BT and Cable and Wireless. Using the Land Registry is not like using a normal service: you can’t choose which Land Registry to use, you use the one and only and pay the list price every time that any title to a property is transacted.

So the Land Registry is a natural monopoly and, as goes the Competition and Market Authority’s main argument, these kinds of services should be publically owned. Handing a monopoly over to a private company in search of profit risks harming consumers – the new owners may simply charge a higher price for the service, or in this case put the data, the Land Registry’s most valuable asset, behind a paywall.

The Law Society says that the Land Registry plays a central role in ensuring property rights in England and Wales, and so we need to ensure that it maintains its integrity and is free from any conflict of interest.


Recent surveys have shown that levels of satisfaction with the service are extremely high. But many of the professional bodies representing those who rely on it, such as the Law Society and estate agents, are extremely sceptical as to whether this trust could be maintained if the institution is sold off.

A sale would be symbolic of the ideological nature of the proposal. Looked at from every angle the sale makes no sense – unless you believe that the state shouldn’t own anything. Seen through this prism and the eyes of those in the Treasury, all the Land Registry amounts to is £1bn that could be used to help close the £72bn deficit before the next election.

In reality it’s worth so much more. It should stay free, open and publically owned.

Duncan McCann is a researcher at the New Economics Foundation