China: They Built It, But Will They Come?
19 Mar, 2013
The New South China Mall in Guangdong Province was completed in 2005 and holds the title of largest shopping mall in the world. It features 5 million square feet of shopping space and, with capacity to accommodate up to 2,350 stores, it is more than twice the size of the largest mall in America. Another Chinese real estate spectacle, the Wonderland Amusement Park in Nankou Town, Changping, was designed to be the largest amusement park in Asia, covering 120 acres of property. The state-of-the-art Chenggong District in the Chinese province of Yunnan features miles of modern apartment complexes, newly constructed office buildings and hundreds of public parks.
The problem? “It’s like walking into a forest of skyscrapers, but they’re all empty,” one financial analyst has said. All of these real estate projects, sophisticated and staggeringly impressive, are virtually empty, devoid of life and any signs of inhabitance.
As of late, dozens of satellite images have emerged out of China, depicting large development projects like the ones mentioned above. The only thing missing is people. These towns are almost completely uninhabited, giving rise to “ghost cities” that have become commonplace throughout China. It is estimated that 10 new ghost cities are built every year, which has led to the current 64 million vacant home units across the country.
With China’s centrally-planned economy, the government sets GDP targets that must be met. According to the IMF, real estate accounts directly for 12 percent of China’s GDP, and has been a major vehicle used to boost the GDP numbers that investors worldwide await with baited breath each month.
China built and continues to build these cities in the hopes of fulfilling the mantra, “if you build it, they will come,” but many suspect they never will. One vacant shopping mall even features counterfeit Starbucks and KFC signs to give the appearance of foreign investment. For the average Chinese working class individual, these homes surpass anything they can ever hope to afford. Only the new, emerging middle class invests in these new real estate developments, as the Chinese government forbids investing abroad, banks offer paltry returns, and home ownership has become a right amongst investment opportunities that are few and far between. While new money has pushed up home prices, these few investors are not enough; Wang Shi, CEO of Vanke, the largest residential real estate developer in China, has said that developers have begun to abandon projects midway through due to less than stellar sales. He also warns that if the Chinese property bubble were to burst, “China could see its version of the Arab Spring.”
Though investment for investment’s sake continues unabated, millions of Chinese peasants live in hopelessness and disillusionment, knowing that though so many homes are available, they are all far out of reach. Home ownership is but a far-fetched dream for many Chinese, who long for the government to intervene to provide affordable housing.
It must be noted that this is not simply a Chinese problem. China is the primary consumer of global cement, steel and iron ore on a per capita basis. The alarming part? All of these resources have gone and continue to go to malls with no stores, homes with no residents, and roads with no cars. Is China really growing as much and as quickly as it claims? Is this quality GDP growth or simply quantity? What will happen when the growth slows, or stops altogether?
It is now up to the Chinese government to decide if its obsession with printing incredible GDP growth is justifiable, and for the rest of the world to negotiate with the fact that China may not always be the driving force behind demand.