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  1. #1
    The Eighth Colour Octarine's Avatar
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    Default China's empty cities.

    In a country of over 1.3 billion people, undergoing rapid economic development (around 10% GDP growth per year), you would expect construction to occur at a rapid rate.

    However, much of the new construction remains empty. Cities to house and employ over 1 million people have been constructed virtually overnight, but remain empty.

    China's mixed economy is blamed. A limited degree of enterprise is permitted and much of this is oriented around construction. Regions also have minimum growth targets and the easiest way to meet these targets is simply to use government money to fuel construction. This construction is then sold off to investors, but the problem is that much of the population simply can't afford to purchase (or seemingly rent) the new properties.
    The consequence is a polarisation between the emerging 'investor' class and the working class. (this is China we're talking about, so the word capitalist is a controversial one)

    [YOUTUBE="http://www.youtube.com/watch?v=pbDeS_mXMnM&list=FLNUPHkbrEgqFW5lVXOlKerA& index=2"]China's Ghost cities[/YOUTUBE]
    [YOUTUBE="http://www.youtube.com/watch?v=E9msCpYbyPs&feature=related"]China's Empty City[/YOUTUBE]
    http://en.wikipedia.org/wiki/New_South_China_Mall

  2. #2
    Queen hunter Virtual ghost's Avatar
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    You never lived in a socialistic country did you ?

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    The Eighth Colour Octarine's Avatar
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    Quote Originally Posted by Antisocial one View Post
    You never lived in a socialistic country did you ?
    I can't say that I have. Do you want to give your perspective?

  4. #4
    RETIRED CzeCze's Avatar
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    I've heard there's some grumbling in China (but then it's so big so maybe just a small part of it is grumbling :P) that investors from Korea and other Asian neighbors are buying up property and making it harder for locals to live there. I also saw a show about how even the new middle class in China is reluctant to move into suburban islands that investors have made, using a lot of European architectural touches. Being communal minded, it feels foreign for the Chinese even when they have financial means, to remove themselves from the hustle and bustle of their community to move to an upper class enclave. That's the model (moving on out) that you see in the states, but it doesn't work in China. Maybe the investors should have done more homework?
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    Queen hunter Virtual ghost's Avatar
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    Default

    Quote Originally Posted by Catbert View Post
    I can't say that I have. Do you want to give your perspective?


    This is pretty much what I was talking about in my libertarian thread that is near by.


    In a trully capitalistic country this would be a disaster but in socialitic society that probably is not the case.




    If I got it right all of this is constructed with goverment money ? So lets presume that is the case.


    What means that the goverment owns all of this and the goverment is the one that is selling this commercial and living space. So now they are selling this to the people who can afford this. But once this process is over they will bacially just give those appartments to the people who need it. And then they will show this as superb succes of their socialistic ways and how much the party cares about them.
    (and most people will probably buy this propaganda or at least be ok with it)

    So I tend to think that you are simply not used to the idea that there is no real market and that some one will be ok with reducing the price of the apartment for 90% or more percent or simply giving it for free.




    But this is probably only the surface of the what they are actually doing.
    The catch is that this entire city did not cost them that much. The work force in China is cheap and probably most of the construction and other companies is very tightly connected with the goverment. So all of the money that the workers earned will be spent on the products made in China. What will further boost the economy what in this case is power of the state. (that has started the project in the first place)
    Plus most of the materials used in this construction are also own but the governmet of China. So the only thing that actually costed is the oil (read fuel) that was imported. What means that this entire city probably did not cost more than a few billion $.



    But where is the catch ? The Chinese know pretty well that with the current trends the entire Western civilization will go bankrupt or even collapse.
    What means that the China that is producing plenty of good that are being sold there will go down togather with the west. However if they somehow imagine the whole new group of people that will need their products they can sleep calmly at night even if entire west goes to hell.


    And what we see here is exactly this, they are artificialy creating consumers out of nowhere by crating modern living space. What means they will need to fill all those apartments and malls with goods. It may not be as profitable as selling those stuff to the west but the production will not stop in the case of global financial armageddon since there will be a demand. It will basically be 0 sum game but the production will survive for the most part and plenty of people will have better living standard. What means that if those two are maintained there probably will not be revolution, civil war, capital system change within China's borders even if the West falls and Chinese govement is not a democratic one.



    So what a capitalist sees as a disaster a socialist may see as a job well done.
    Plus it may be happy that there is some one out there that is doing his job superbly.



    As I said in another thread - this is one of the tricks that could bring down the western kind of thinking. Which is because it can create huge growth of standard out of nothing. But a typical westener simply dont see the things for what they are because you are not familiar with this kind of logic.


    So as a person born in Eastern Europe during Communism this would be my perspective on this weird problem in China.

  6. #6
    The Eighth Colour Octarine's Avatar
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    On a surface level, it looks clear - there has been a construction bubble, specifically of property that most people cannot afford. There is massive demand for new high quality housing in China right now, but if the price is too high, then no one will move in. There may however be some cultural aspects such as those that CzeCze mentioned, but I don't know enough about that to factor it in.

    You can see how during the boom, government officials will see it as win-win. They contribute to a large amount of growth and make a healthy profit while they are at it. The problem is that with so many empty properties (millions), prices have to come down. This means that sooner or later, investors and the government (extensive unsold property) will lose money. The result is the economic stagnation we have repeatedly seen elsewhere.

    In terms of the empty properties, ether there is enough economic growth for the average person to afford the property, or the prices must drop. In terms of growth of income, this is going to take a while and you would have to wonder why so much property was built 10-20 years premature?
    Secondly, although the labour may have been cheap compared to western standards, the resource cost of these properties has not been as cheap as we may first think and price reductions of 90% will cause massive financial losses.

    The actions of the government so far suggest that they do not want to pop the bubble. But at some point it is going to happen, otherwise there will be social discontent. Will the government turn around and say that perhaps the market oriented reforms were a bad idea and end up purchasing the properties for a pittance?
    The problem is that saying that would only be a half truth, the market reforms are what led to the huge economic growth in the first place.

    Not all western countries are currently "going bankrupt", but if they do, you are right that China will take a massive hit and will be forced to turn inwards. It's economy won't be zero-sum though, you have to realise that there are almost an infinite amount of ways to use a particular resource and any trade that increases the productivity from using those resources will be positive sum.
    Last edited by Octarine; 08-22-2011 at 09:48 PM.

  7. #7
    Emperor/Dictator kyuuei's Avatar
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    The idealistic person inside of me is thinking "Why didn't they bother to build anything for the working class? Surely they must know that two people making $1,000 combined wouldn't be able to afford any of that..." And little else.
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  8. #8
    The Eighth Colour Octarine's Avatar
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    Quote Originally Posted by kyuuei View Post
    The idealistic person inside of me is thinking "Why didn't they bother to build anything for the working class? Surely they must know that two people making $1,000 combined wouldn't be able to afford any of that..." And little else.
    The idealistic person inside me agrees. Why bother building so much housing that few can afford?

    But even though the government is ultimately doing the planning, it is still private investors who ultimately fund the deal, perhaps the investors did not wish to invest in lower quality housing.

  9. #9
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    Quote Originally Posted by Antisocial one View Post
    You never lived in a socialistic country did you ?
    Oh please! It was the capitalist Henry Ford who said, "You can have any colour as long as it's black".

  10. #10
    Filthy Apes! Kalach's Avatar
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    Default

    I assumed it was mostly corruption. Groups of investors (people often point fingers at speculators from Wenzhou, I don't know why) arrange for land to be bought (or leased or whatever the government allows these days), and for construction to happen, and for money to be sent back to them in some fashion. There is so much of this kind of construction, and so relatively little actual occupancy resulting from it, that however the investors are getting their money back it isn't by selling to people who want to make homes. I assume kick-backs, interesting book keeping, strange relationships between companies.

    I'm under the impression though that a very big chunk of the the profit to be made is based on the very low cost of the land in the first place. If the investors do the right deal with the local government, they can get the current farmer/owners moved on more or less for free, and then they do their developer shenanigans to get rich. That this kind of arrangement is so very easy to coordinate these days in China (or to put it another way, that corruption is no longer the province of older men working individually) accounts, I wildly presume, for just how much pointless building goes on.
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