Four Years Later, A Journalist Revisited China's Most Famous Ghost City - Here's The Depressing Way It Has Changed

BI: Some, like Stephen Roach, have argued that these ghost cities can be explained away as part of China's urbanization plan. In your experience, does this add up?

RS: Perhaps some of them can, but for the most part, I don't agree with this statement. While it is true that some cities are filling up - the outskirts of Zhengzhou, which the TV program "60 Minutes" profiled a couple of years ago as a ghost town is a good example of a city that has defied early criticisms - other cities like Ordos do not fit neatly into China's urbanization plan.

Roach uses the Pudong district of Shanghai as an example of a place that was built, stood empty for a while, and then filled up, the message being other empty cities like Ordos just need time. It's important to remember that 1. Pudong was built in the 1990s, before China had even entered the WTO and was on the cusp of more than a decade of double-digit GDP growth. China's economy today is very different. It's slowing down and China's economic planners are taking the first steps to rebalance the economy from one built on investment-led growth to one built on consumer growth. That's not an easy transition to make, especially for an economy of this size, and it's going to require years of slower economic growth. 2. Pudong is in Shanghai, which is strategically located and is home to one of the world's largest ports. Ordos is in the middle of the desert and is running out of groundwater.

If all of these ghost cities and ghost suburbs were part of a master plan hatched in Beijing by the central government, I'd imagine we'd see more affordable housing, as that's what is needed in China. Instead, most of the housing that's been built in these empty districts are luxury condos and villas. I have a hard time believing people will eventually move into these empty complexes in the next five years, especially in the scenario of a cooling economy. The other thing to keep in mind is that many of this new housing isn't built well, and it's hard to imagine them retaining their value over the time it may take for China's economy to return to its glory days. I think another danger is that once housing prices begin to plummet - which we are already seeing initial signs of in second tier cities in China - it'll devastate the financial stability of cities like Ordos.

I think it's important to remember, too, that the ghost city phenomenon in China is partially due to how local governments are forced to finance themselves. Local governments in China are in a perpetual cash squeeze because they have to hand over a bulk of their tax revenue to the central government and because the central government often orders localities to build all sorts of infrastructure projects but Beijing often neglects to help with funding. Because the Party owns all of the land in China, local governments solve their funding problems by seizing land from their poorest residents, giving them a paltry sum in return, and then they sell the land to developers, essentially flipping real estate on a massive scale. Of course this has the added benefit of raising GDP figures, increasing the chance that local leaders will be promoted within the Party.

BI: Do you see more Chinese ghost cities propping up? Is it possible that some 'Ghost cities' are worse than others?

RS: I think each ghost city/ghost suburb should be treated differently - each of them has its own unique background and circumstances. Some of them will survive - we've already seen that happen in places like Zhengzhou and even in some of the exurbs of Shanghai that have filled out - but many won't. I was talking with Arthur Kroeber at GK Dragonomics a couple of months ago, in my mind one of the best experts on China's economy, and he was telling me about the city of Guiyang and how the province it belongs to, Guizhou, has an 80% debt-to-GDP ratio, which is incredibly dangerous. Arthur's usually pretty bullish on China's prospects, but he threw his optimism out the window when talking about the empty suburbs of that city, where hundreds of thousands of apartments sit, empty, while the largely mountainous province continues to plod along as one of China's poorest. The FT's (moving to The Economist soon) Simon Rabinovitch did a great story about all of Guiyang's empty housing, and what's happened there looks pretty scary.

I think whether we see more ghost cities popping up depends on whether the central government is serious about promises to overhaul the GDP-based local official evaluation system and the way that local governments finance themselves.

BI: What's the most bizarre experience you've had in China's ghost cities?

RS: My first morning in Kangbashi, I woke up and walked through the empty hotel lobby to take a look outside onto the public square. There wasn't a soul in sight, and the first birds of spring were singing outside. The only other sound was muzak pumping through the speakers from the hotel. As I looked around for any signs of life, I suddenly recognized the song. It was a Chinese version of Simon and Garfunkel's "Sound of Silence" played with a Chinese erhu.