China’s remarkable economic growth is one of the great stories of our time, the image of a wakening dragon shaking off the scales of massive poverty and a rural, subsidence society to take its place as the world’s most powerful industrial engine and most ravenous consumer marketplace.
But China’s government, never one to lay all its cards on the table, continues to ply its ancient skills at illusion and deception. China’s infamous “ghost cities” are a perfect example. All over China, vast, modern cities are springing up—beautiful, gleaming places that would be the pride of any nation, especially at a time when in most parts of the world construction has ground to a screeching halt. But new China’s cities, so glamorous on their surface, are lacking a critical component—people.
As we wrote last November in the WealthCycles.com article, Rising Dragon, Falling Star, China began implementing a series of free market reforms in the late 1970s. Within a couple of decades, the nation was transformed from a closed society, steeped in the legislated mediocrity of a socialized economy, into a capitalistic rising sun, albeit one that remained subject to close government scrutiny.
China’s growth really took off in the wake of the 2008 Financial Crisis. As the United States desperately borrowed to fend off deflation, China happily gobbled up U.S. debt, resulting in a currency bubble that fed speculation and a runaway building spree.
Aerial images of China’s sprawling new cities have flooded the Internet—hundreds of thousands of high-rise apartment buildings, university campuses, luxury condominiums, residential neighborhoods, government complexes, shining freeways—all empty.
BusinessInsider.com cites a commenter from the World Bank blog:
For the most part the new development has occurred at the far-flung outskirts of major metropolitan areas. The logic is that as China becomes more industrialized, there will be people to occupy the vast developments. Problem is few people want to live long miles from where their jobs are, and vast swaths of the population have no realistic hope of ever being able to afford to live in the shiny new buildings.
The Chinese government keeps interest rates low, or in some cases funds the development itself, and encourages Chinese banks to loan money cheap to builders and speculators. Meantime its constantly growing GDP continues to amaze the world.
We wrote about China’s ghost cities in another WealthCycles.com blog in March, Building Pyramids:
All bubbles pop eventually, and when this one does property prices inevitably will fall. The question is whether enough people will come to occupy China’s ghost cities before they have fallen into ruin with time. Right now they appear of a kind with the half-finished shells of resort casinos in Vegas or the strange empty skyscrapers of the Singapore skyline—just one more victim of the voracious currency printing monster that was created by governments and central banks and which ultimately cannot be controlled.
Deflation is a contraction of the currency supply, which causes prices to fall and the value of currency to rise. When prices fall, a boom becomes a bust, and suddenly a recession becomes a depression. Fed Chairman Ben Bernanke, a scholar of the Great Depression, knows the dangers that deflation poses to a debt-based economy.