The origin and risks of “ghost towns”
In recent years, the “ghost town” is a phenomenon that is often quoted by the media to criticize the real estate bubbles. Generally speaking, the so-called “ghost town” refers to that a large number of residential projects have been built in such an area, but few people are attracted to live here and many houses are unoccupied.
Last year, the National Development and Reform Commission once carried out the “new urban district” investigation for 12 provinces and regions. It was found that about 1.5 new cities and new districts were going to be built averagely for each prefecture-level city, and for many new districts, there were frequently the planning for areas with tens of square kilometers and even more than 100 square kilometers. Why do local governments have the motivation for building new towns? One obvious fact is that the urbanization has caused a large number of people to flow into cities, but the original urban areas are unable to contain so many people, therefore new towns around the cities have to be built. According to the data from the State Statistics Bureau, the amount of China’s floating population reached 236 million persons in 2012, and most of them made their lives around the cities. Therefore the constructions for new towns are also unavoidable.
Why so many new towns will become ghost towns? One very important reason lies in the advancing of local governments on infrastructure construction. If we once more return to the situation 10 years ago, then many new towns that now look very prosperous were the “ghost towns” in a certain sense. Taking Pudong of Shanghai as an example, the fifth population census in 2002 showed that the permanent resident population in the whole district was 3,187,445 persons, but the sixth population census in 2010 showed that the number reached 5,044,430, altogether increasing 1,856,985 persons in 10 years, and the increase rate was 58.26%. Many places in Pudong of Shanghai were still empty 10 years ago, but now most of them are busy streets.
But does it mean that these current new towns will all become downtown areas in the future? Not necessarily. Viewing from the trend of China’s population mobility, people flow from China's central and western regions to eastern regions, from countryside to big cities. As a result, permanent residents in most of central and western provinces is less than the registered population, and in most county towns including those in the eastern regions, the permanent resident population is always less than the registered population. Moreover, such population shift trend will not change in the near future, so new towns built at regions that have no appealed to people will still become ghost towns.
Taking Zhejiang Province as an example, among the 58 counties (cities) in the whole province, there are 31 counties (cities) where the amount of permanent resident population in 2010 is higher than that in 2000, and only 17 counties (cities) where the amount of permanent resident population is higher than that of the registered population. In many county towns, the amount of permanent resident population is even only 70% of that of the registered population.
Although Zhejiang is one of the most advanced provinces for China’s economy, and its county economy is also regarded as the leader in China, but even so, the number of permanent residents in these counties is reducing.
But what is interesting is that even the population of these areas is becoming less and less, the determination of these counties for the constructions of new towns is still unchanged.
Do local governments not see the trend of population movements? There are statistical departments in all local governments, and they obviously know the flow direction of population. Why do local governments at various levels undoubtedly know that the population is reducing but are still willing to build new towns on a large scale? One important reason might lie in that due to the prosperity in the real estate market in the past, they think that the costs for building new towns can absolutely be compensated. Besides, GDP can also be increased through building new towns, why not enjoy doing it?
In fact, the history of land sales causes local governments to underestimate the potential risks of “ghost towns.” In the past more than 10 years, the cities where the new town development has been carried out with the land as mortgage at the earliest almost all have gained success: starting from the 1980s in the last century, the special economic zones such as Shenzhen and Xiamen etc. were forced to attempt to imitate Hong Kong, through transferring the urban land usage right for the financing for infrastructure construction, since then a unique way of accumulating the original capital for urbanization with land as the basis of credit was initiated — this is the origin of “land finance.” With a series of institutional innovation such as the reform of the housing system in 1998 and the land auction in 2003 etc., lands become more valuable. As a result, sales of land help local governments to accumulate the original capitals with unprecedented speed: not only the bills due have been paid off gradually for urban infrastructures, but also even advanced infrastructures have been constructed —— such as new towns.
However, house prices in China finally will fall. Though urban real estate was booming in the past 10 years, once the urban land supply exceeds the actual demand, the house price will fall back. Currently the situation of the new towns under a large-scale construction is also like this. It is expectable that the new urban districts built by many county towns may fail to escape from the destiny of becoming “ghost towns”; it doesn’t matter if only they have become “ghost towns,” what is even terrible is that the constructions for all these new towns are through bank credit, and finally such kind of debt has to be undertaken by local residents, so it might cause the financial risks. This is the real risk for a “ghost town”.
Published on Southern Metropolis Daily | 2014-4-8
