Cities tend to evolve. Ordos, straddling a rich coal seam in Inner Mongolia and far from the costal plains where China’s construction boom first took hold, was built in a few years.
It is in instant cities such as this, and along the highways and rail lines that stretch out from them, that Australia’s economic prosperity rests. If local house prices crash and dole queues lengthen, places such as Ordos, rather than Adelaide or Albury, will be the likely cause.
Michael Christopher Brown’s Time photo essay documents how Chinese industrialisation has taken an eerie, speculative twist. In Ordos, subdivisions more Nevadan than Mongolian, thickly coat the landscape. There are office towers, apartment blocks, a huge public library and a futuristic museum, freighted in to counter the sprawling banality of its environs. Ordos appears to have everything.
Everything, that is, except inhabitants. A city built for 1.3 million people is almost entirely without life. Nor is it unique. Even in China’s most populous cities, entire buildings lie vacant.
Anecdotal evidence abounds. On the morning of a solar eclipse, a Chinese university professor rode through the streets of Beijing. Amid the smog and gloom and traffic, he noted for the first time the vacant, unlit skyscrapers. The South China Mall, east of Guangzhou, is the world’s second largest. Only 1% of it is occupied. The parking lot, untroubled by vehicles, now features an impromptu go-kart racing track. No one shops there because no one lives in the nearby apartments.
A state power company recently reported that over a six-month period 65 million homes, enough to house 200 million people, didn’t use any electricity. Companies that once made shoes now develop real estate. State owned enterprises that mined salt now build office parks. Housemaids are getting “divorced” to buy second apartments.
In a centrally planned economy, these bridges to nowhere could be officially mandated; a post-GFC rush pump to keep things moving. More likely is that China’s construction sector has become a giant casino, with countries such as Australia supplying the chips.
The statistics, although scant, bolster the theory. Vitaliy Katsenelson, chief investment officer with Investment Management Associates, claims that at the height of the Japanese property bubble, the housing affordability ratio, calculated by dividing average property prices by average annual disposable incomes, was nine times. In Shanghai that ratio is now 12. In Beijing it’s 14.
At the peak of the US housing boom, Katsenelson says that property investment as a percentage of GDP was never more than 6%. During the Japanese speculative frenzy it reached 9%. In China in 2009 it was 10%. Even Chinese real estate developers, some purveyors of “tofu-dreg projects”, so-called because of their shoddy building standards and 30-year lifespan, think Chinese real estate is a bubble.
Wary of being late for yet another crisis, the World Bank on Friday reversed its previous view and called China’s property market “a particular source of risk”. The Economist Intelligence Unit (motto: prepare for opportunity), apparently still gripped by the efficient market theory, may be the last domino to fall.
The first line of an EIU report titled Building Rome in a Day and released last month is adamant: “China is not facing a major housing bubble, although there could be a short-term mild correction”. The report, which states that the housing equivalent of Rome is being built in China every two weeks, says that, “there are few signs that the seemingly insatiable appetite of Chinese consumers for bigger and better housing will slow substantially”.
No, no signs at all. As long as everyone keeps on buying houses and offices rather than actually living and working in them, everything should work out just fine. That’s the theory anyway.