How China’s rush to urbanise has created a slew of ghost towns

Premier Li Keqiang saw process as a key driver of economic growth but doubts are emerging

PUBLISHED : Tuesday, 07 March, 2017, 2:42pm
UPDATED : Wednesday, 08 March, 2017, 4:59pm

Six skyscrapers overlooking a huge, man-made lake once seemed like a dazzling illustration of a city’s ambition, the transformation of desert on the edge of Ordos in Inner Mongolia into a gleaming residential and commercial complex to help secure its future prosperity.

At noon on a cold winter’s day the reality seemed rather different.

Only a handful of people could be seen entering or exiting the buildings, with hardly a trace of activity in the 42-storey skyscrapers.

The complex opened five years ago, but just three of its buildings have been sold to the city government and another is occupied by its developer, a bank and an energy company. The remaining two are empty – gates blocked and dust piled on the ground.

Yang Xiaolong, a security guard in his early twenties, said he was hopeful the good times would come.

“This is a good place, with modern buildings, grand plazas and many tourist attractions,” he said. “Once there are more people and businesses, the city will be more lively.”

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The authorities in Ordos, along with those in thousands of other cities and towns in China, once shared the same confidence.

They followed the example of the authorities in Shenzhen in the 1980s and Pudong in Shanghai in the next decade, believing that if massive infrastructure projects and buildings were put in place, prosperity would surely come.

China’s central government also preached that “urbanisation” would be a long-term engine for growth as hundreds of millions of people in rural areas moved to cities to take up jobs in the nation’s burgeoning economy.

Ordos once boomed, its prosperity underpinned by a surge in the price of its main commodity – coal.

Flush with confidence, the city, with a population of two million in an area about the size of Scotland, embarked on the huge Kangbashi district construction project.

Dubbed China’s answer to Dubai by the mainland Chinese media, the project involved creating a 372 sq km district on the edge of the Gobi Desert, including commercial and residential complexes, themed plazas, malls, government buildings and colossal, futuristic architecture.

Watch: Inside one of China's ghost towns

Ordos was once a gigantic construction site with money pouring in from the coal industry boom and easy bank credit. An official in Inner Mongolia proudly announced in 2009 that the city was as rich as Hong Kong in terms of per capita gross domestic product (GDP).

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Ordos, however, was just one project in China’s rush to urbanise. The nation used more cement in the three years from 2011 to 2013 than the United States used in the entire 20th century.

It was during this frenetic wave of construction that Premier Li Keqiang took office.

Li, who delivered his fourth government work report on the opening day of the annual meeting of the National People’s Congress on Sunday, has often lauded the “urbanisation of the people”, helping Chinese migrant workers settle in cities to enjoy social welfare and become consumers – a fresh source of economic growth.

Four years later, however, and real doubts have emerged over whether the breakneck rush to urbanise through massive construction projects, often fuelled through huge levels of debt, will ever create more than a vast number of white elephants.

One survey carried out last year by a think tank controlled by the central government’s National Development and Reform Commission suggested that 3,500 new districts in China would be able to house 3.4 billion people. The nation’s current population is 1.4 billion.

The Kangbashi scheme in Ordos appears to have been massively overambitious.

It planned to attract one million people in the long run, with an interim target of 300,000 by 2020.

Its current population is less than 100,000.

Other urbanisation projects pursued elsewhere in China appear to have suffered the same fate, with vacant buildings, a bleak industrial outlook and swelling local government debt.

An infrastructure spending splurge cannot last forever. With no industrial pillar to attract people and business, the city will taste the bitterness of the hubris of rampant urbanisation sooner rather than later
Hu Xingdou, economist

China’s rush to urbanise is a relatively new phenomenon.

The founding father of the communist People’s Republic, Mao Zedong, had an ideological distrust of cities and their urban elites and restricted the movement of people into cities through the household registration system.

Urbanisation gained speed after China started trials of market economic reforms in coastal areas after Mao’s death in 1976, with hundreds of millions of rural labourers flocking to city workshops and construction sites.

“Premier Li put urbanisation as a key driver of economic growth when he took office in 2013,” said Henry Chan Hing Lee, an adjunct research fellow at the National University of Singapore’s East Asia Institute.

“The original plan was to accelerate urbanisation and use construction to drive growth, which was apparently modified by President Xi Jinping later.”

The accelerated urbanisation plan was discussed extensively in 2013 by mainland China’s state-controlled media.

The State Council and the Communist Party Central Committee released a report the following year announcing the government’s intention to boost the proportion of the nation’s population living in towns and cities to 60 per cent by 2020.

Lee said the brake on the rapidly accelerating urbanisation drive was widely believed to have been applied by Xi amid rising concerns about the spiralling levels of debt local governments were accumulating in order to fuel the construction boom.

Local governments were sitting on a volcano of at least 16 trillion yuan (US$2.3 trillion) in unpaid debts by the end of 2015. The average level of local government debt compared to GDP was 31 per cent, official data showed. Guizhou and Yunnan provinces, plus the metropolis of Chongqing, recorded debt burdens of more than half their GDP.

Yuan Gangming, an economics professor at Beijing’s Tsinghua University, said there was an increasing realisation that the vast urbanisation construction and infrastructure projects should have come after social and economic policies were put in place to help fully develop the economy.

“Urbanisation used as a means to drive the economy has been questioned in recent years,” he said. “As more people realise that urbanisation should be no more than a natural outcome of economic and social development, Beijing’s policy was changed.”

One problem, Yuan said, was that the rush to create new towns and cities was initiated before the government fully relaxed the household registration system to make it easier for migrant workers to move into cities and claim basic rights and privileges such as education for their children and welfare benefits.

“If you miss the essential point of caring for people and making them live a better life, the pursuit of urbanisation is meaningless,” he said. “It took a long time for decisionmakers to get this point and it will take even longer for all the needed reforms to take place to change the status quo.”

The damage, however, has already been done.

Other mostly empty ghost towns can be found across China, including the Yujiapu financial district in Tianjin, the Chenggong district in Kunming in Yunnan and Yingkou in Liaoning province.

Farmers in villages in more than 20 provinces have also had their farmland seized by local governments and property developers. Under the name of urbanisation, local officials forced them to abandon their homes and move to towns.

A farmer in Pingyi county in Shandong province committed suicide by setting himself on fire after local officials demolished his home two years ago.

The authorities in Ordos, however, are hard at work trying to make their ambitious expansion scheme work.

New buildings are still going up and the local government is trying to attract cloud computing, culture and technology companies to the city.

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So far the results have been mixed.

Some car companies have set up factories thanks to the city’s cheap coal and electricity supplies, but the newly built culture industry zone and low-carbon innovation zone are largely empty.

Some 14.4 billion yuan was invested in 81 infrastructure construction project in Kangbashi in the five years up to 2015.

The investment helped the city’s economy grow by an average of 32 per cent each year, the local government said.

Fiscal revenue in the district rose 5 per cent a year to 4.6 billion yuan, which helped the government “purify” 2.6 billion yuan of debts.

“Ordos is lucky in that it has rich coal mines and private collieries which are big contributors to local coffers,” said Hu Xingdou, an economist at the Beijing Institute of Technology.

“However, an infrastructure spending splurge cannot last forever. With no industrial pillar to attract people and business, the city will taste the bitterness of the hubris of rampant urbanisation sooner rather than later.”

Zhang Buhuan, 67, is among those who now live in Kangbashi district.

He was one of the farmers and herdsmen who lost their grasslands to development projects.

He sat in the winter sunshine outside a restaurant in his neighbourhood, his hands curled inside his thick, black, cotton-padded jacket.

“Every day I sit in the sun, play cards or chat with neighbours,” he said. “I used to take care of sheep in my village before I was moved here. Now I have nothing to do.”

At least one third of his fellow villagers refused to move to the new district, he added.

“Sometimes, I go downtown. It’s such a grand and beautiful place,” Zhang said. “They spent so much money on it.

“But if they can spend more on people; for example, increase our pension from the current monthly 500 yuan, life would be better.”

Additional reporting by Frank Tang