|Kangbashi, ghost city in the desert|
|The New South China Mall -- avoid the holiday crowds!|
Smarting from the deflation of our real estate bubble in 2008, you may have heard about the crazy pace of building in China and wondered what they're doing. The Shanghai skyline is now the new New York (although the bulbous CTV tower is no Chrysler Building, aesthetically). However, strange things are happening on the periphery of cities, for no obvious organic reason except to keep 50 million construction workers busy and spend billions in saved money that has to go somewhere. One place it did go, 161 billion dollars of it, was a new suburb called Kangbashi about 16 miles out of Ordos in arid Inner Mongolia. Yes, 16 miles from pretty much nowhere.
Built for one million future residents, it so far has only attracted about 28,000. It is no shantytown; it looks well built, has advanced infrastructure, and boasts two theaters and a large art museum. The apartments (condos, I assume) sell for $50,000 to $60,000 -- imagine the stampede for modern homes here at those prices. And we build in the desert too (ever hear of Phoenix?). The catch is the local people make about $2 a day, and these homes are as out of reach as those here priced in the millions. Whoops.
The People's Republic ruling Politburo has never been known for its sense of whimsy, but another odd project under their regime of State Capitalism was the "Wonderland" theme park, sitting spookily empty on 100 acres near Beijing since it never opened. Construction began in 1998 but ceased after disagreements with local farmers about being booted off their land. Since the park was modeled on Disney World, the developers could have learned a lesson or two about secretive land acquisition from the masters (there's a fascinating book on the subject).
Second in area only to the Dubai Mall, the New South China Mall near Guanzhou is still 99% vacant after its 2005 opening. It's a very ambitious mashup of theme park and mall, with zones that mimic Egypt, Venice, California and Paris (with a Vegas-like fake Arc de Triomphe, canal with gondolas and St. Mark's bell tower) along with an indoor roller coaster. They must have had planners hired away from right around here (we're the home of the Impossible Parking Lot and the Unsolvable Drainage Problem), because the mall is rather inaccessible due to lack of highways actually going to it and little public transportation extending that far. Exactly like here, except we have a clogged two-laner or so going to the retail centers.
Other than as a jobs program, these projects seem to be the result of a huge pile of savings with nowhere to go. The reason for this high savings rate is that China has no social security plan. But, like Americans' more meager stash, these accounts do not earn enough interest (around 3.5%) to even keep ahead of inflation. Our interest rates and rate of inflation are lower, but the situation's the same. China's government dictates uniform national savings and lending rates to its banks, and individual investment outside of the country is prohibited, so its state capitalist system is set up to channel unthinkable amounts where they decide. The upper classes (and increasingly the growing middle class) buy up real estate of any kind, frantically, as an alternative investment. Like the Miami condo bubble, some will get in and out at the right place and time, but it's gambling, not investing, and billions in loans to development moguls have gone bad. As Joseph Tainter observed, there are no mechanisms in advanced socieities that can be used to reduce complexity, only mechanisms to increase it.
And as Shelley's Ozymandias had it, "Look on my works, ye mighty, and despair!" Indeed.
*1634 - 1667: the tulip bubble
1719 - 1722: the South Seas bubble
1921 - 1932: the Dow Jones bubble
2008 - ?: Dow Jones and real estate bubble
...and so it goes.