?-Towns: China and the Austr[al]ian Business Cycle

Australian Dateline's Adrian Brown travels up to the middle kingdom to see what happens when a planned economy produces not only Ghost Towns, not only Ghost Malls, but Ghost Mixed-Use New Urbanisms. 

Unfortunately not embeddable (do they know about YouTube down under?), but watchable here. Land of the Dead fans will enjoy the many views from empty luxury apartments onto sweeping landscapes of dirty shacks. Supporters of the Common People will enjoy the erhu-scored visit to those dirty shacks – which features a couple who can't afford to have their daughter live with them, let alone purchase one of the condos that are priced from $75,000 AUD ($77,572.50 U.S.) to $100,000 AUD ($103,430 U.S.). And if you're in a Blue Christmas mood, dig the guy trying to sell toys from his store in the largest vacant mall on earth. (Link courtesy of Eric Hanneken.)

I'm not sure the numbers in this piece indicate that China's real estate bubble is headed for a deflation as precipitous as the continuing correction in the United States. One billion people against the 64 million vacant units in China estimated by real estate egghead Gillem Tulloch comes to one vacant unit for every 15.6 people. Three hundred million people against the 19 million vacant units in the U.S.A. estimated in this 2009 Bloomberg story comes to one vacant unit for every 15.7 people. And that's in the early stages of the American correction, which has continued since then and accelerated most recently. In fact if Brown really wants to see swanky streets full of empty houses, I invite him to visit a little place called Los Angeles. (You can stay in my car, Adrian.) 

But the show is a haunting look at misallocation on a vast scale. As Tulloch notes, all the new construction is boosting GDP, but "It's not the quantity of GDP that matters. It's the quality." I don't know whether it's all going to go south. To my eye it looks pretty far south already, but then I've felt the same way about my own country since two recessions ago. The one thing I do know is that if it all does go south, everybody will blame capitalism. 

P.S. to old China hands: I know guai doesn't translate exactly into "ghost." But it looks cool. 

Comments

[Tim]

Pink? Pinkos? You McCarthyiest bastard!

[JW]

But, they're high speed ghost towns.

[Scruffy Nerd Herder]

Win

[Spencer]

I had a professor in college who would call the chinese and russians pink-stinko commie bastards. he was AWESOME. he was a fighter pilot in the Korean war and he got to see Hirohito "fish" in a tux.

anyway, these are planned to be the place where members of the politburo get to hunt the proles in the future, right? I mean, all Jean Claude Van Dam like, or Ice-T for those knock off buffs.

[alan]

Knock offs had been around about as long as Most Dangerous Game was first written. I recall the Hulk TV series from the seventies doing one.

[alan]

have had, blech. The number of times I have moved the cursor to correct a word only to hit submit instead I can't count.

[Spencer]

I feel sorry for the sumbitch who thought he was hunting Banner but ended up getting HULK SMASHED!

[DesigNate]

lol

[Devil Inchoate]

Paging Tom Friedman...

[Tim]

"If only American leaders had the kind of power that the Chinese do..."

[Pro Libertate]

Does the Australian business cycle completely correlate to the international success of Paul Hogan?

[JW]

I believe you're referring to the Men at Work inflationary bubble.

[sloopyinca]

Neither of you better let Russell Crowe hear you say that.

[Pro Libertate]

His contributions to the Australian economy have been negligible.

[alan]

I hear he throws a phone like a girl, and the only reason the bus boy didn't kick his whiny bitch ass Crowe's because he was afraid of losing a decent paying job.

[alan]

Seriously, that 'his' was replaced with 'Crowe's'. Screw the squirrels, I am going home.

[Pro Libertate]

Oh, please. As all experts on Australian economics know, that bubble was, in fact, driven by Yahoo Serious. Possibly the greatest boom since the Olivia Newton John one.

[sloopyinca]

Yeah, but economists tend to gloss over the Xanadu bust of 1980 that nearly starved a nation.

[Spencer]

Yahoo serious was a childhood idol of mine.

[alan]

Yahoo Serious? That's an odd name for a malted chocolate beverage. Yahoo Intense, maybe.

Come to think of it, I really would like to have a Yahoo Intense, but unfortunately they only exist in me noggin.

[SugarFree]

Yahoo Serious: This Yahoo Ain't Fuckin' Around

[ClubMedSux]

I miss Kayo, but I'm not sure if that was ever available outside of the Chicago area.

[ClubMedSux]

So are you saying now's the time to sell my stock in Koala Blue?

[JW]

Sigh....everyone knows that without the trailblazing work of Jacko, Serious' influence would never been a fraction of what it was.

[Sudden]

Teh Guuz were behind that inflationary bubble. That's what reknowned Aussie scholar Mel Gibson said. I think there was some reference to it in his latest book on tape "Give me head you fucking Russian bitch"

[Pro Libertate]

Of course, without AC/DC, Japan would've acquired Australia long ago.

[Tim Cavanaugh]

Why would they need to when they've got Raudonesu?

[Pro Libertate]

Almost, but not Scottish enough.

[Mensan]

Mel Gibson is not Aussie. He's Irish and American (dual citizenship). His father moved him to Australia when he was a teenager so he wouldn't be drafted and sent to Vietnam.

[Jim]

I can already hear it. They'll say that this didn't happen until the Chinese opened up their economy, so the stupid waste rose in direct proportion with the amount of capitalism they introduced to the system. Sadly predictable.

[Otto]

Prior to opening up their system, they quite efficient at eliminating waste, along with their surplus population...

[Corporate Drone]

Am I the only one who sees these for what they will eventually be; prisons?

[albo]

I see that mall, at least, as the top skateboarding destination of 2015

[Old Salt]

A Chinese skateboarding prison mall?

I just know I'm gonna see a shitty B-movie based on that idea!

[Spencer]

sounds like something I watched as a kid in the 80s

[sloopyinca]

Greaming The Cube 2?

[Spencer]

and subtle racism for the WIN!

[Brett L]

The asian kid is the hero in this one?

[Butts Wagner]

Skate-kata. It's skateboarding and martial arts. Together at last!

[Spencer]

Nope. Urban military training. Human Hunting, something like that.

[Scruffy Nerd Herder]

An Omega Man reference and Oingo Boingo to boot. I truly am at home here.

[Head Albino]

Show him your pretty marks...

[Professional Critic]

More than Rand or any other philosopher, it was Danny Elfman who first opened my 12 year old eyes to the positive virtues of individuals and the threat of groupthink and coercive government.

Too bad he went all squishy later on.

[Jim]

You can frustrate 'em, but it's tough to take the red out of a died-in-the-wool commie.

The one guy who paints toenails for a living said the government should provide better housing as part of their human rights.

[albo]

The one guy who paints toenails for a living said the government should provide better housing as part of their human rights.

His government is actively inflating the cost of housing out of his reach.

If the government shouldn't actually provide him with housing, it also shouldn't distort the market in a way that hurts his chances to actually buy a home instead.

[Scooby]

Nothing to do with China, but I haven't been paying attention to the AUD/USD exchange rate for the last few years.

Is it really almost at parity now? Last time I checked (about 5 years ago), it was about AUD$1.50 to USD$1. I guess the Aussies don't have the efficient printing presses that we do.

[Steve Irwin]

Crikey! A dingo ate me printing press!

[Paul Hogan]

That's not a printing press. THIS is a printing press.

[Mensan]

Good news for me. I have an envelope with a few hundred AUS dollars that I forgot exchange after the last time I visited down there. PROFIT!

[Old Mexican]

But the show is a haunting look at misallocation on a vast scale.

They were "shovel ready" projects, though...

As Tulloch notes, all the new construction is boosting GDP, but "It's not the quantity of GDP that matters. It's the quality."

... and "quality" does not include "government."

[Old Mexican]

The one thing I do know is that if it all does go south, everybody will blame capitalism.

As always. Nobody blames socialism, Keynesianism and GDP worshipping, or at least, nobody in the media....

[Irresponsible Hater]

The scale of this misallocation - entire "cities" - seems like it could rank up there with some of the largest Soviet era brainfarts. Ukraine no longer able/allowed to feed itself. Aral Sea gone.

"Modern" Chinese cities springing up in a (still, relatively) poor country of dirt farmers.

That's up there with the US and West burning food for fuel.

These kinds of things, on these scales, are so big that geneticists will see their markers in our DNA in a thousand years. "Ah, and this blip in this gene's frequency in the general population, this is the corn-for-fuel famine when a hundred million people under a certain income threshold starved to death in African and Asia. And here, see this frequency change here, this is from when China built empty, crumbling cities and huge dams instead of letting dirt farmers start small businesses."

[Predicador]

priced from $75,000 AUD ($77,572.50 U.S.) to $100,000 AUD ($103,430 U.S.).

Using such a precision in converting currencies makes little sense. AUDUSD has been everywhere from 1.0287 to 1.0371 today (GMT). Right now, it's at 1.0340, but may easily move ten points this or that way before I finish this sentence. On top of that, the amount was likely converted from CNY before.

[SugarFree]

"It's genuine 160-proof old Anglo-Saxon, baby."

[Citizen Nothing]

South China Mall looks amazingly like Columbus City Center did at the end.

[Citizen Nothing]

Ironic trivia: Before Columbus City Center was itself bulldozed, it was built atop the bulldozed remains of buildings that had included the site of the LP Ohio headquarters.

[Laoshi]

Comments here about China remind me of the days I volunteered at Golden Gloves events. The "best" and loudest advice to the fighters always came from the cheap seats the farthest from the punching. I am living in Hainan Island right now and see first hand the growing bubble especially in the resort town of SanYa and also in the capital city of Haikou. Indeed if we were still under socialism there would be no bubble and most of our residents would still be living in poverty in small villages. Capitalism has caused this bubble, and when it bursts, lots of capitalists will be screwed. With the Deng Xiaoping reforms private enterprise has rapidly expanded from small, free markets selling vegetables, to private restaurants, to auto dealers to home builders. A company I am familiar with started out doing small jobs updating existing condos then expanded into construction of new units in the northeast. Now they have taken long term leases on property in Hainan and have begun building condos for northeastern Chinese who have become rich enough under the reforms to afford retirement and resort second homes.
Without sales taxes, property taxes, or income taxes of consequence local governments that are being pressured into providing infrastructures have taken to long term leasing land for development and an income source. There has been frequent criticism in the papers here of local governments that force farmers off their land so that developers can make a profit, something we are familiar with in the U.S. Many of these farmers aren't active but are elderly people supported by family members in cities and some are also taking the payment they are offered, taking a new replacement house, then are demanding a new unit in the upscale building as well. If they don't get paid off they know they can take their case to western reporters who are always looking for negative articles about China and don't question what they are told. Of course many locals are getting screwed by what they are getting from the local government, something all governments are good at no matter where you are. Taking advantage of the massive expansion of the number of wealthy Chinese who are looking for investment opportunities these developers have been selling a large number of units on the island. Because there has been a big demand, prices have soared to the point that units that should be selling for a couple of thousand Yuan per meter are now being priced at 40,000 Yuan a meter in parts of SanYa, a price way out of line with what average people can afford. Lots of these units have been purchased as investments, so you can drive by fully sold buildings that are totally dark at night. Nobody is decorating, there are no food stores or markets in the area, and everything is for speculation. We bought a unit in a development in a smaller town and most of our owners are decorating and at least plan to retire here or spend winters here in the tropics.
The national government has been smarter than the US government in that they have not pushed banks into giving loans to people who can't afford the housing in the first place. The national government has raised the down payment requirement to 30% for a first house, 50% for a second house, and no loans for third houses. In some places this hardly slowed up the bubble as people began to pay cash for their investments. I think what that means is that when the bubble bursts the banks won't be in as bad a position as they have been in the U.S., but a lot of investors will lose a lot of money, something that happens in the boom/bust cycles of capitalism.
What I can see in the future is lots of bankrupt developments and abandoned condos. This would fit in well with the government's announced intentions to provide for affordable housing for poorer people. Local governments may end up taking over abandoned buildings then doing minimal decoration for cheap sale to locals. The Party depends heavily on the support of the rural poor, many of whom keep posters of Mao on the wall, and this would keep them happy. The losers will be the rich city folks who miscalculated on the investment opportunity and future profitable sales.

[sevo]

OK, I read the whole thing, and it looks like some sort of word salad, arguing first one way and then the other.
Care to try do put your point into a paragraph or two?

[Laoshi]

How about this: Unless people live in China, out in the neighborhoods and not just in the expat community, they don't know shit about what is going on there. Go take a look for yourself and don't rely on the media to tell you what to think.

[Poker Player in Macau]

Guai does translate exactly into ghost, though it's also used as a part of a derogatory term for foreigners.

[han]

Inflationists, deflationists, monetarists, goldbugs, Keynesians, Friedmanites, Austrians, freshwaterists, saltwaterists, Grid Epsilon Irregulars and others are urged to listen in.