China's Ghost Cities: Could The Real Estate Bubble Burst? (VIDEO)

So many new high-rise urban centers have sprouted across China in recent years that you can almost hear the bubble popping.

Kangbashi, a city in Inner Mongolia, is the subject of Bloomberg's first video installment on these underpopulated, but investment-heavy "ghost cities." And Kangbashi is just one city in the government's larger plan to create roughly 36 million affordable apartments in the country.

Currently, only around 30,000 people live in Kangbashi. But that hasn't stopped the government from investing $160 billion in the city's real estate construction in order to provide accommodation for an expected one million people, Bloomberg TV reports.

Could China be on the verge of a bubble? Much of the economy has been driven by real estate construction designed for an expected influx of people from rural farming areas to urban industrialized centers. But well-known economist Jim Chanos of Kynikos Associates tells Bloomberg he isn't sure this will happen as planned. Many of the overly optimistic now could be too stubborn to admit it.

"People don't want to think that the Chinese growth model might not have as much to it as they thought," Chanos says in Bloomberg's video.

See the first installment of Bloomberg's Chinese "ghost city" series below.

Comments

[Amalek]

08:05 AM on 05/19/2011

The thing that is different in China is that most of the real estate is already sold, and people have made huge downpayments 30% or more - many actually pay cash.   But they don't live in the property - they are just buying for investment.   That will make the bubble different than the U.S. since it is less likely people face foreclosure.  Until prices drop a lot, they will just hold on and wait for things to get better.

[Jon Dadde]

10:38 AM on 05/19/2011

Yea, it's always different this time. China is like Dubai. Tons of properties completely empty after tons of speculators have bid up the prices beyond what the average Chinese can even fathom. When all the bank lending stops and prices plummet you will see all the bad loans on the books of the Chinese banks just like in Japan.. It is no different.

[historysquared]

09:30 AM on 05/20/2011

Parents help with the down payment. The children then qualify for loans up to 10:1 of income. To put that in perspective, you can only qualify for loans 3 times your income in the US. A Trillion Yuan black market also is tapped to get "cash" to pay for properties.

[Konnie]

09:28 PM on 05/18/2011

well since they have all our jobs, and a bunch of empty apartments, lets export our unemployed to china too. sounds like a win/win to me.

[covyzoo]

08:52 PM on 05/18/2011

I hope China falls on it's face. We've given them so much business and they send back products that poison Americans. I say we stop supporting China, we stop borrowing from China and start looking to the USA for ALL of our goods and manufacturing. PERIOD.

[olephart]

08:33 AM on 05/19/2011

"we stop borrowing from China"

I'll give back the wars if you give back the tax cuts otherwise we keep borrowing.

[EastTraveler]

08:40 AM on 05/19/2011

When one goes into Walmart you are going into a store that had single handily started the China industrial revolution...

[Mitch Khumsteen]

03:14 PM on 05/18/2011

hey Huffpo - please, for the love of pete, stop the AUTOPLAY that is now pervasive on your pages with video. we don't want to start the video until we're ready to start the video. power to the user, please.

[steve11407]

04:32 PM on 05/18/2011

x2

[edmond dantes]

09:25 AM on 05/18/2011

Your insinuation that government caused the 2008 financial crisis is misguided and misleading. Government didn't create CDOs and CDSs, strip away the incentives for banks to lend responsibly by securitizing and selling off mortgages the moment they were signed, hire lobbyists to create an entire multi-trillion dollar shadow market outside the domain of regulators, or bribe the credit rating firms to look the other way. Wall Street did all of that. In this case, more government - in the form of oversight and regulation - was needed, not less.

[steve11407]

04:36 PM on 05/18/2011

government allowed it with the relaxing of the regulations that had been in place for decades begining with Clinton through Bush and Obama..

[themasterpuppeteer]

07:21 PM on 05/18/2011

They didn't create it, but they allowed it.

[Roadrun]

08:38 AM on 05/18/2011

So basically people in Detroit are funding building in Kangbashi. The cities have a similar look from one perspective.

If this isn't proof that Cons have sold America down the river I don't know what is.

[Brady68]

08:34 AM on 05/18/2011

can we send the baggers there? it would be an upgrade for them and we would not miss them

[Roadrun]

08:44 AM on 05/18/2011

Now there's an idea I can go for!

Oh, make sure you pack the hat, drum and that piccolo. We need to make sure they can still parade.

[AllPowertothePeople]

12:54 PM on 05/18/2011

Exactly, but let's be nice. We'll give them a week's supply of air masks. After that they can enjoy the no regulations style of chinese air pollution.

[Mitchman57]

08:21 PM on 05/18/2011

Not piccolo, fife.

[whatisrightisright]

02:51 PM on 05/18/2011

I think its better suited for the libs, being that they are the ones who love centralized, government planning of everything.

[historysquared]

08:14 AM on 05/18/2011

China is not a capitalist system, at best it's a "state capitalist system," and in reality it's simply a communist system with most money allocated by the government to projects. This can be direct (say directly funding the car industry, or other "socially good projects") or indirectly through subsidies and tax breaks. Either way money artificially flows to that industry that otherwise would not. It's more direct in China, as they order the banks to lend, where to lend, and whom to lend to (state owned enterprises).

But the US bubble was not different. The government directed capital and credit to the housing market through fannie mae backstopping of mortgage loans, tax breaks, forcing banks to fund a % of mortgages to the poor, flooding the market with artificially cheap credit by the Fed in response to the internet bubble crash (see Krugman quote "we need a housing bubble to replace the internet bubble), complete with a campaign slogan ("the american dream").

The government then blamed the banks for lending out the credit tsunami that they initiated. But that was like putting a piece of cake in front of a fat kid, to eat as much as you want, then yelling at him for eating it.

This is not a capitalist system, which would have had stricter and more expensive mortgages and made housing less attractive as an "investment" - and thus, no bubble.

[shelby35]

04:14 PM on 05/18/2011

China is more fascist than anything and adopts a corporatist economic model similar to Juan Peron's Argentina.

[erikqj]

07:19 AM on 05/18/2011

The trouble isn't the government investments in infrastructure and city planning. The government can afford it. The millions upon millions of investors who have bought property in the expectation of a continued growth in housing prices will loose their investments, as will the banks that have been lending them money. Both deserve it, for their insipid stupidity, so that's not the problem, either. The problem is all the honest people depending on selling their labor and product. When the accumulated wealth in the market evaporates, they're going down as well. That stops real value creation, and that will crash the economy.

Unfortunately, in situations like that, the only thing to do is pump money back into the market, which can only be done through the banks, who will funnel it out through the market speculators, reimbursing the idiots who caused the whole thing. In the end, the working people will carry the bill for setting things right. That's the problem.

On the bright side, after the crash, the people that this housing was supposed to go to will be able to afford to buy it. Right now, they can't, because of the investors causing runaway prices.

[skyslimit]

01:52 AM on 05/18/2011

Dear China: Stop Fu¢king!!

[jflorish]

01:05 AM on 05/18/2011

China has money to burn. Far different then the U.S

[thereisonlyoneparty]

12:25 AM on 05/18/2011

China is likely to come back to reality at some point, but the growth is not just about real estate.  This is really a situation like post-WWII America.  There is a huge segment of the population that is beginning to take part in the economy more and now able to purchase goods and services.

There is a lot of illusory growth in China.  That will have to be corrected at some point, but the manufacturing power of China and the ability to buy other businesses is going to make the economy incredibly strong (and more and more so as the US economy weakens.)   Weak US and EU economics are only going to help China.

[shelby35]

04:16 PM on 05/18/2011

The question remains though will the Chinese manage the crash as well as the US or will it spiral into a Japanese deflationary recession or even a Depression?

[GordonNYC]

12:09 AM on 05/18/2011

Real estate bubble? China is more Capitalist then they want to admit.

[erikqj]

07:25 AM on 05/18/2011

China is the most capitalist country on the planet, right now. The government is attempting to use capitalism as a tool, gambling that they can control it. It's caused incredible growth, but I suspect that it's getting away from the governments control, and that it'll crash very hard.

[kdlaiusa]

01:29 PM on 05/18/2011

China has $3 trillion USD in reserve.

[MuchMadness]

11:58 PM on 05/17/2011

Is China able to produce most of its food domestically, or does it have to import a lot of food?
If it can produce most of what it needs domestically, then maybe manufacturing wages in the cities can be raised enough to encourage people to migrate from farms to the cities, and those new urban workers could be consumers of the manufactured goods that they produce.

It would be a very slow process, but if China began to raise wages and sell more manufactured within its own borders, that might cause the U.S. to be forced to manufacture more goods in the U.S. because cheap imports from China would no longer be available.

[GordonNYC]

12:13 AM on 05/18/2011

What they need is american progressive brain trusts like yourself to figure out what's best for their economy. You can make a fortune working there.

[erikqj]

07:36 AM on 05/18/2011

China produces most of it's own food, though the margins are getting tight (they're looking toward increasing potato production, which gives more food per area). They also have a dramatic rise in wages. The latter, though, is fueled by the huge exports. They also have a growing internal market, which further enhances the massive growth. Hoping that they'll stop exporting is a waste of perfectly good energy, though. Rather, you should spend the energy figuring out how to sell American merchandize and services on the Chinese market. China is having a dramatic increase in the upper class and the higher middle class, demanding products that are expensive enough to be manufactured by workers with American size wages. A crash will only put a temporary dent in that demand.

[Tb0n3]

11:13 PM on 05/17/2011

What's impressive is that they can afford to do it. This isn't just one experiment. There are multiple cities being built. Their multiplying their capacity to manufacture and develop. Meanwhile we piss away over a trillion dollars in the middle east. Don't dismiss this Chineese experiment as folly. They are going to eat our lunch if we don't wise up.

[flossophy]

12:04 AM on 05/18/2011

Every Asian economic superstar has suffered a financial crisis at least once in their ascendancy. 

China will not be immune to this. 

[Siebenstein]

12:11 AM on 05/18/2011

You mean every c0rrvpt and out-of-control brvtal capitalist society.

[shelby35]

04:20 PM on 05/18/2011

It will be for nought if they can't occupy those cities with residents. Then it will be a great folly for the communist government.