The theory, particularly if you’re in the upper reaches of China’s government, is that at some point people will inhabit these vast expanses of infrastructure and housing that exist in ghost cities across China!
This is anticipated if, as expected, the population of China steadily moves from the country’s hinterlands to its cities!
Back in 2014, a Hallmark Abstract Service article titled ‘China’s Manhattan is a virtual ghost town! (Video)‘ explored eerie examples of government and quasi-private spending that have run-up massive amounts of debt, all in an effort aimed at urban planning.
More to the point, however, these projects are also meant to keep the vast Chinese economic growth-machine humming at levels reported by that government to be exceeding a +6.0% annual pace.
But are there, or at least should there be, concerns surrounding all of the private company debt that’s been floated for construction-related industries and others, particularly as the economy in China appears to be weakening and potential tariffs and trade war looms on the horizon? Likely, yes!
And should there also be concern over the vast amount of borrowing that LGFB’s, or Local Government Financing Vehicles, have borrowed from the government of China to fund what are these currently unoccupied ghost cities? Likely, no, as this simply represents government borrowing from the government.
At some point, however, when the music ultimately stops, the question is who it will be left standing without a chair?
‘A shortage of bank funding and an increasingly competitive business environment has left companies fighting to survive, analysts say…
…The spike in defaults has unsettled regulators that have been keen to prevent systemic risks as they seek to reduce national debt levels.
“No matter what industry they are in, what these companies have in common is that they are finding it much harder than state-owned enterprises to get financing,” Qin Han, chief fixed-income analyst at Guotai Junan Securities, wrote in a note.
Deteriorating business could lead banks to withdraw loans and cause a cash shortage. Eventually, it will lead to more defaults. State-owned enterprises [in contrast] can rely on other sources of borrowing to sustain them, even if their businesses are feeling the strain…”’ (Source)
Tieling, China – Example Of A Ghost City
‘Tieling outstripped the national economy for years, peaking in 2007 when it grew by 20.8 percent, which was fast enough for the local economy to double in size within three-and-a-half years, and significantly faster than the 13 percent growth for China as a whole. But the growth was built entirely on public works that weren’t generating any income…
…Rather than build incrementally, adding infrastructure if and when it becomes necessary, officials across the country have, herd-like, embraced the if-you-build-it-they-will-come model of urban planning…
…”[At first] China’s new cities and new zones . . . like Shenzhen and Shanghai’s Pudong . . . were a node of economic growth . . . however, the new cities and new zones that are now blooming everywhere . . . are moving in the opposite direction . . . They create massive financial waste, they burden local government with heavy debt, and they make the ‘development disease’ of relying on investment to drive the economy worse and worse…”‘ (Source)
Video: China’s Ghost Cities Continue To Haunt Its Economy