Why China’s Ghost Towns Matter For the World Economy
It’s no surprise that the global recovery is facing a new round of setbacks, as the IMF reported in a new report issued today. But after high food prices, slow growth, and heavy debt, there’s another potential force emerging that could block the global recovery.
This one starts with metal. Too much, as it’s turning out. China’s property market is showing signs of rusting. Home buys in major cities are slowing down. Construction outside the megatrapolises has infamously produced dozens of “ghost” towns that are actually more like stillborn cities, because they were designed for residents that never materialized
The People’s Bank of China has raised interest rates four times in the last two years and raised bank deposit requirements 11 times since January 2010, reports Caixin, a Chinese business magazine. This will slow down investment and make it more difficult for the country’s emerging middle class to move out to these theoretical cities. Few analysts are anticipating a full-scale meltdown of the Chinese housing market. But even a moderate dip reverberates.
Read more at The Atlantic
Wrong! The Atlantic gets Chinese growth wrong. The author barely whispers of a connection to the global economy to these handful of empty cities, and to thread interest rates and CPI together based on one IMF report - without question - is just poor reporting. For example, it’s disingenuous to say that the People’s Bank of China raised interest rates four times in the past year without providing context. In 2008, the rate was 5.58%. It’s currently at 6.31%. Big f’n whoop, Atlantic.
How quickly the Atlantic forgets that China just implemented it’s 11th five-year plan, which focuses on slowing growth. So of course they raised interest rates - they announced it months ago, and have been planning it for years.
As for housing bubbles, the Chinese do not have a history of mortgaging property - it’s brand new concept to 100s of millions of people. For the Chinese that do know, they’ve overpriced certain markets vis a vis speculation. But, to say that these regional effects are suddenly impacting global markets belies the fact that the markets were sans such ‘influence’ less then a decade ago!
Why so much deference to the IMF?? Is the Atlantic a PR firm?? Do some reporting, or at least use google. The rural Chinese aren’t moving to these cities because there isn’t the infrastructure to bring people in. Rural residents barely know these new cities exist. Nor do they have incentive to move to them compared to existing cities, which are thousands of years old, are proven centers of economic stability, and are highly likely to contain family, friends, and other contacts - not to mention well developed routes to get there. New highways to these new cities are just that - new, nothing more. Why expect the poor to instantly be able to purchase a home, or even be interested in it? Certainly not just because they were built. So, yeah, of course they’re empty. The Atlantic can do better than regurgitate reports by the IMF.
As for high food prices, China’s CPI is relatively and historically pretty low. It’s especially low considering such explosive growth. Does the Atlantic have a better idea as to where it should be considering this type of growth? Yes, it should be way higher, and way more out of control. But it’s not. It’s pretty darn stable. And the Chinese are aggressively regulating and tamping down prices (not to mention purchasing irrigable land in Africa). Further, China is extremely lucky that CPI hasn’t completely exploded due to several several extreme natural disasters impacting the agricultural sector.
Agreed, China’s empty new cities are a problem. But they’re not a global problem. They’re a regional problem with respect the provinces and to report it as such is not cool. (And don’t get me started on regional corruption!). The Atlantic should stop exciting its readers with fluff pieces like this.