We’ve had a few modern ghost towns in the US, such as California City and the Salton Sea, but the Chinese towns are remarkable in that they are completely developed.
The difference between American and Chinese real estate development failures is attributable to the difference between the countries’ respective economic systems: In the US, when the market doesn’t respond, the capital dries up. That’s why the Salton Sea is mostly a bunch of empty parcels, the project started but never finished. But in China, the centrally-planned government keeps on building.
Incentives in China are more politically motivated, and risk/rewards are not correlated like they are in a (functioning) capitalist system. A real estate developer in the US quits when he realizes he won’t see a return on investment. A bureaucrat in China keeps building, since the money is not his anyway, and he must complete the project in order to claim “success.”
There tends to be a bullish slant toward China here in Piggington. I’ve always been skeptical of the pro-China arguments, and suspect this sentiment is often more about cynicism toward US policy than any objective understanding of the Chinese economy.
Although China will continue to be a lead player in the world economy, the folly of these ghost towns is a sign that the people running the Chinese economy may not be so wise after all.
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