China's Ghost Recovery

Authored by Jeffrey Snider via Alhambra Investment Partners,

To the naked eye, it represents progress. China has still an enormous rural population doing subsistence level farming. As the nation grows economically, such a way of life is an inherent drag, an anchor on aggregate efficiency Chinese officials would rather not put up with. Moving a quarter of a billion people into cities in an historically condensed time period calls for radical thinking, and radical doing. In one official party plan, it was or has to happen before 2026.

The idea has been to build 20 new cities for this urbanization, and then maybe 20 more. It led to places like Yujiapu in Tianjin. China’s answer to Manhattan was to include a replica Lincoln Center, a Rockefeller Center and even twin towers. Built to fit half a million, barely 100,000 live there.

There are numerous other examples of these ghost cities, including Kangbashi dug out of the grassy plains of Inner Mongolia. It is in every sense a modern marvel, 137 sq. miles of tower blocks and skyscrapers that sit almost entirely empty. There are now plans to build yet another one, south of the capital Beijing this time, to supposedly relieve pressure and pollution of that city’s urban sprawl. In the Xiongan New Area, this newest city will be three times the size of NYC, enough, if plans were ever to actually work out, to draw almost 7 million Chinese.

These are mind-boggling numbers and end up making truly eerie places for the few times when their existence is allowed to be acknowledged in the mainstream. The reasons for them are really not hard to comprehend, however.

The older ghost cities started out as pure demographics, a place for China’s new middle class to urbanize and economize. The more the rest of the world demanded for China to produce and ship, the more Chinese (cheap) labor it would all require. And there had to be something other than slums for this to happen, else any such intrusive transformation risked what was and remains a delicate power balance.

Then in 2008 suddenly the world paused in its love affair of Chinese-made goods. No problem, though, as Chinese officials assuming it was temporary merely sped up the process of building for the future, getting ahead of the curve, as it were. Surely China would need to after the full global recovery get right back on the same trajectory as before.

That never happened, and though some economists in particular still believe it will, there isn’t the slightest sign of global demand getting nearly that far back. What do you do, then, if you are China? There is logic to keeping up the illusion, that the future will eventually look a lot like the “miracle” past, because what else would China Inc. otherwise do? If it won’t be building stuff for export to the West, then it will have to be building something.

No matter how many times in the Western media they say demand is robust, catching up, or resilient, the Chinese know better.

China’s overseas shipments rose from a year earlier as global demand held up and trade tensions with the U.S. were kept in check amid ongoing talks. At home, resilient demand led to a rise in imports.


Demand for Chinese products has proven resilient this year as global demand holds up.

Chinese exports in June 2017 are estimated (currently) to have risen 11.3% year-over-year. It sounds like what was written above about the global condition. But in truth, 11% growth, as 15% or even 20% growth at this stage, keeps China in the ghost city state. It isn’t anything close to “resilient”, let alone enough to make up for lost time and absorb the empty cities already built.

There are instead already indications that China’s trade statistics are topping out – at levels not yet even as much as the insufficient growth rates produced in 2014. For the three months of Q2 combined, exports rose by just 8.1%. While that was the best quarterly rate in more than two years, it was less than what decelerating global demand required of China in Q4 2014 in the early stages of this “rising dollar.”

On the import side, the increase in June was for the fourth straight month less than 20%. Given the dramatic contraction especially in 2015 of Chinese imports, 20% only seems good outside of relevant context. After China’s experience with the dot-com recession, by contrast, by early 2003 imports grew by sustained 40% for several years.

The media can talk in glowing terms all it wants about China’s economy, but the truth is very different. It is instead consistent with the rest of the global economy in 2017, striking only for the distinct lack of momentum as “resiliency.” Enough time has passed since the end of the downturn in 2016 that if this was going to change it would have.

Whether in trade or local economy terms, going back to 2011 there is a ceiling on even the rebounds. There is something still very wrong with the economy, as even though it might be better this year than last it is still far short of normal. That is a reflection here through China on the rest of it.

Unless and until Americans and Europeans start buying Chinese goods again, any goods for that matter, there will have to be more ghost cities coming. Neither rebalancing nor global recovery are in China’s future. A 2014 Chinese government study concluded that as much as $6.8 trillion in so-called investments had been wasted from 2009 to that point. In the strictest sense it certainly seems to have been, but, again, what else were they going to do? Economists called it “stimulus” and still do, but in truth it was actually the last option in maintaining the (recovery) lie.

They are not ghost cities.  It is still a ghost recovery.



DeepFriedLizards hongdo Sun, 07/16/2017 - 21:44 Permalink

What strikes me is that these cities look empty, but safe.  Maybe not, China puts out a lot of shit but I have to wonder, can you walk safely through these streets at night?Are there gangs?  No niggers, muslims or spics to be sure but I can't help but wonder.  Not aimed at you hongdo.  Just wanted to get some opinions/links.

In reply to by hongdo

GooseShtepping Moron DeepFriedLizards Sun, 07/16/2017 - 22:11 Permalink

China is not safe. If you walk around a large urban area in mainland China, you'll witness a curious phenomenon that looks pretty strange to Western eyes: groups of men (or women -- the groups are not co-ed), from as small as two to as large as two dozen, all walking down the street holding each other's hands. You'll probably wonder what's up with that. Is everybody in China gay?No, they're not gay. They do this for mutual protection from muggers, pickpockets, and other random acts of violance. Chinese security forces are plenty effective at quelling political dissent but aren't much use against street crime, and the Chinese people don't trust the police anyway, with good reason. So they've adopted the strategy of looking out for each other. This makes the streets "safe," but not in the sense ordinarily meant. 

In reply to by DeepFriedLizards

DeepFriedLizards GooseShtepping Moron Sun, 07/16/2017 - 22:50 Permalink

Thanks for the input GSM.Here in rural Alaska guns are the norm.  No permits required to carry concealed or otherwise.  State troopers are pretty decent too.  I hate what I see happening in the lower 48.  I don't even understand it.  It's almost like no law exist and what does just works against you.If you can take the cold, this is the place to be.

In reply to by GooseShtepping Moron

just the tip DeepFriedLizards Mon, 07/17/2017 - 02:45 Permalink

back in '97 i was in seoul.  a situation similar to GSM.  about 2230 hours in downtown seoul.  just walking around.  a couple of us guys.  out of no where this girl about twenty came walking by.  alone.  at this point i should say, she was not a hooker.   i thought out loud, is this bitch crazy out as this time of night in the city by herself.  one of our group asked me.  what has she got to be afraid of?  no korean is going to bother her.  the only thing she has to worry about are crazy americans.  no doubt there are predators in every society.  but in certain situations there was back then a code of behavior in the asian culture.

In reply to by DeepFriedLizards

Stinkytofu (not verified) DeepFriedLizards Mon, 07/17/2017 - 05:55 Permalink

yes, suuuuper safe in regards to violent crime, especiallydirected against foreigners.  well, white foreigners anyways.things are different in regard to africans. 99% of the time a laowai gets beat up, it involves drunkenasshattery on the part of said laowai. pickpockets and scammers aplenty, but nonviolent.

In reply to by DeepFriedLizards

Tarjan DeepFriedLizards Mon, 07/17/2017 - 12:41 Permalink

Cannot say that I have been in a Chinese "ghost city", but from the time I first walked through various parts, even the poorest, of Shenzhen in 1998 up to the present in Chengdu, I have never had to worry about safely walking in a Chinese city at night. China is geographically nearly as large as CONUS and I have yet to get to every city, but I can say that from the southwest (Kunming) through the south, up the east coast of China, through Beijing, Tangshan and to Dalian; all are safe day or night.It has been said that the most dangerous part of living/being in China is crossing the street. That may have been the past, but now crossing the street is mostly a safe activity.  ~ 

In reply to by DeepFriedLizards

fattail Troy Ounce Mon, 07/17/2017 - 07:30 Permalink

I wonder what all that surplus manufacturing capacity is going to be manufacturing with the next deflationary downdraft.  I know the west fears job losses of 30-40% for jobs involving menial repetitive tasks.  Which is essentially what china built their great economy on.  As companies look to reduce costs to maintain market share, automation will more than ever be able to answer the call.  A wave of automation will be another one of the effects of the next recession which will affect third world exporters more than they have ever been before.  All those chinese workers wiping iphone screens seem to be replacable.  The second machine age is coming to a ghost city near you.

In reply to by Troy Ounce

Cordeezy (not verified) Sun, 07/16/2017 - 20:45 Permalink

well hey if manhattan ever got nuked, new yorkers would have a place to feel right at home?  weird they built cities to mirror other cities.  Do they have to copy everything?

Cordeezy (not verified) Sun, 07/16/2017 - 20:45 Permalink

well hey if manhattan ever got nuked, new yorkers would have a place to feel right at home?  weird they built cities to mirror other cities.  Do they have to copy everything?

qdone Sun, 07/16/2017 - 21:11 Permalink

Chinese manufactured ghost cities for 20 years. Fed maunfactured Buffett, Microsoft, Walmart, Target, Oracle, Apple, Twitter, Google, Hedge Funds, .... one could go on-and on. When the SHTF, and it will, none of it will be edible.

whatsupdoc Sun, 07/16/2017 - 21:31 Permalink

The world keeps spinnin' regardless of the state of a recovery anywhere.  I wonder what it'll take for the spinnin' to stop?  I is sufferin' from motion sickness.

CRM114 Sun, 07/16/2017 - 21:34 Permalink

About 3 years ago, quality started dropping rapidly. Best I can tell, this is due to internal changes within items to cut costs, but it has seriously damaged reliability. This is across the board - electronics, lighting, simple items.I, and a lot of others, have switched to buying NA/Eur goods again, if we can find them, or making do/making our own.I can't see China getting out of this one. Cheap isn't cheap if the product doen't last.

idontcare FlKeysFisherman Mon, 07/17/2017 - 01:08 Permalink

In 1996, Jim Rogers said that by this point in history that the US would be finished, the Yuan would be the currency of the world, that the primary language would be Mandarin, and a bunch of other predictions about the demise of America on the world stage.  Well, the US is still the biggest game in town.   Maybe he'll be right by 2040.

In reply to by FlKeysFisherman

SantaClaws Sun, 07/16/2017 - 22:24 Permalink

Ghost cities.  Who maintains the empty buildings?  Is there water running/leaking?  Is there electricity flowing?  What if there is a fire?  Is there a sewer/water treatment system?  Not sure I want to know.How long in weeks or months does it take before these ghost cities begin to implode from lack of use/inattention? 

roddy6667 SantaClaws Mon, 07/17/2017 - 02:15 Permalink

I will use Kangbashi for an example. First, it is a district, a neighborood of Ordos, not a city. Originally designed for a million people on paper, it was scaled back twice befor constrution started. The money in this area comes from coal. The worldwide drop in commodity prices and China's cutbacks on coal to clean up the air ended up with the district being built to house 300,000. It is about halfway through a 20 year planned development cycle. About 150,000 people now live in Kangbashi. It is right on schedule. It is a success.The buildings, like most in China, are made from steel-reinforced concrete. They need about as much maintenance as a bridge abutment, especially in an arid area like Ordos. There has always been staff present to clean the streets, take care of the landscaping, elevators, street lights and all that. Of course they have a sewage system. They are a district of an existing city. If a unit is vacant, it will not have water to it.There has been a huge effort on the part of outside writers to paint this as a failure. Thousands of empty homes in the almost desert that nobody wants to buy, blah blah blah. That is tptally false. Almost 100% of the homes were sold before they were built. They were purchased mostly for cash by local people. The builder paid off the construction loan and moved on. There are many reasons why they haven't moved into their new homes yet. Some were bought as the future home for their children when they get married, at about age 30. Others are slow to move into an urban environment. They have been living in a backwards remote area. Change is hard, especially for old people. They will get there eventually. Homes are sold as a concrete shell. You need to spend another 20 % to  finish it. This takes time and  money. I live in a 5 year old home in a high rise in Qingdao. The units above and below me were just vacant concrete shells until a couple of months ago. There was a flurry of activity and a lot of noise, and they are finished. Other than a little dust and spider webs, concrete buildings do not degrade from being empty. They are certainly not going to "implode from lack of use/inattention" This is just complete nonsense.

In reply to by SantaClaws

Let it Go Sun, 07/16/2017 - 22:57 Permalink

The ghost cities will fall apart due to the poor construction before they can be filled with people.The Chinese economy is being propped up by a stack of newly printed money. In a world where money flows across borders at the press of a button, it doesn't matter which major central bank is adding money to the system the effect is the same. Today money printed and injected into the economy of any country drives markets higher across the world by distorting demand and prices.Do not underestimate the influence of money fleeing and leaking out of China on the world economy. The Chinese are even rushing to buy companies outside their country. I see much of this as a way for those in China to hedge their bets and at the same time get money out of the country.Those who doubt the power of cross-border money flows need only look to Vancouver Canada which has been forced to implement a foreign buyer tax in an effort to halt the rise in housing prices inflated by "hot money" from China. Toronto's housing market has also gone crazy with prices soaring 33% from the prior year. For more on just how much China is expanding its money supply see the article below.

Silver Savior Mon, 07/17/2017 - 00:40 Permalink

So where are all the resources going to come from to make more ghost cities? See I believe in finite planet. I think we already crossed over the line. But the bastards keep wanting more more more. When do we pull the plug and say "can't do it"? Of course republicans and rednecks all seem to think there is plenty of everything which is quite laughable.