Ordos, China: The World’s Largest Ghost City (2014)

My rented apartment in central Beijing is about 10 years old, considered fairly high end (we pay 7500 RMB/month for a one bedroom), and is already showing signs of deterioration (and our complex is considered "good" and well managed compared to the other ones in our fairly middle class Sanyuan Qiao area). It is a combination of poor construction techniques + poor maintenance + poor planning. The government and development companies "built to build" with little focus on the long term.

They are already tearing down developments made 15, 10, or 5 years ago, or even before they are finished* for "re-development."

* http://www.zerohedge.com/article/china-proudly-demolishing-b...

China is about to become the most indebted nation. At the rapid pace they're accumulating debt, that should happen within the next few years. They've spent wildly to keep the building spree going; even now their real estate market is crashing, it has been falling for a year.

It begs a simple question: how many more people can China transition out of old China's poverty, and into the new China's middle class, before they run out of the ability to accumulate more debt to keep it all going (global consumers are tapped out, which has left China's manufacturing boom dead in the water, with their PMI contracting during a supposed non-recessionary period).

I fail to see how thinking ahead equates to taking on tens of trillions in new debt to fake economic growth. That sounds like they're baking up an economic recipe for future stagnation.

Prices skyrocketed due to housing as an investment. It's a very peculiar thing but basically it was a self-fulfilling prophecy. Houses go from $100k to $120k in two years? Alright well let's buy a house as an investment on a shitty salary, it's free money.

Until everyone said that, and the rate of prices going up kept increasing, and kept reinforcing the investment opportunity myth.

Basic bubble, basically. And it was of course fueled by insane growth in wages.

I mean just look at these graphs for wage growth: http://online.wsj.com/media/WAGES.jpg http://ase.tufts.edu/gdae/images/Vernengo_AvgrealwagesChina....

It's insane. You basically had 20-30 years of 15% growth annually. 20 years of that is 16x. 30 years is 66x. It wasn't quite 15%, but probably 10-11% on average the past 30 years. That means housing prices will naturally rise, and when they naturally rise for decades and there's seemingly free money if you invest in a home, it's easy for an investment bubble to arise that even outpaces wage growth.

Then add to that two more elements: gigantic internal migration (China has internal passports, it's very interesting. But it doesn't stop huge urbanisation).

How big? Well 25 years ago urbanisation was about 25%. Today it's about 55%.

Then add to that population growth of 200 million extra people. What do you get? No joke, half a billion extra people living in cities compared to just 25 years ago, in China. That's insane. That's literally the entirety of North America (more than 20 countries), or all of South America times 1.5, or all of Europe and then some, living in cities, many of them existing ones.

And that's how you get homes worth $200 - 400k, for Chinese who have a $7k GDP per capita, and middle class wages deviating from that only slightly higher.

Partially it's alright. China will still urbanise, it will have to demolish and rebuild many buildings, and its population will add another 100m people. But on the other hand, it's an extremely worrying asset bubble we don't talk about enough. People forget that China was, though far from alone, in some ways quite instrumental in dampening the effects of the economic crisis. One can worry what happens if an economic crisis arises from China itself, as asset prices in some areas are just absolutely batshit insane and will have to be written off at some point, which collapses the house of cards. (selling overpriced property for nothing, which already happens but is inevitable on a larger scale, reduces all property values, who are overpriced too, escalating a major selloff that'll leave tons of debt in its wake. Familiar story of course.)

I see this as a pyramid scheme. The local municipalities can get away with not charging taxes because so many new construction is going on. But a few years from now when construction has slowed down, they will need money for schools, hospitals, etc. By that time they will have to charge taxes and it will become a losing proposition to maintain empty properties.