China's housing bubble: ghost malls, ghost highrises, and ghost cities

Here's an Australian TV documentary about China's housing bubble which has given rise of bizarre ghost malls, ghost highrises, and even ghost cities. It's symptomatic of the growing divide between China's rich and poor, which has left many Chinese without adequate housing. Unlike the US bubble, the Chinese property bubble isn't founded on cheap credit, which makes the analyst hosting the show believe that it won't burst in the same way as American one.

China's Ghost Cities and Malls


  1. I’ve seen this video before. The second half is poignant and true but the first half is neither. I’ve been to both Zhengzhou, Henan and Dongguan, Guangdong and both are bustling cities filled with people. The places shown in the video are simply areas in the developing edges of the main city. Hardly a “ghost city” in any sense of the word.

  2. “Don’t worry guys, this bubble is different!”

    How many times have we heard that before?

  3. It’s very depressing to walk through these new mall structures. They’re very empty and are built on demolished housing. The people who lived there are forced to move far outside of the city (Beijing in this case) because it is too expensive to live in the newly built mall structures and the government doesn’t compensate them properly. This is what you get when the citizens aren’t allowed to actually own their own property.

  4. I went to the Ishanya shopping mall in Pune India a couple of years ago and experienced the same thing. I almost had the place to myself except for a few bored security guards telling me to stop taking pictures. Most of the shops sold expensive furniture and knick knacks and of course a few miles down the road was a huge slum.

  5. The bust is not going to be the same – it will be worse because the scale of the imbalance is much worse than in the US. The Chinese economy is churning out huge amounts of stuff (malls, residences, etc.) that people don’t need. It will come to an end. That which cannot be sustained will not be. Think of all the construction labor that goes into building a cty the size of San Diego. Think of all the materials (cement, asphalt, steel, gypsum wallboard, paint, carpeting). Think of all the factories needed to churn that stuff out and think of all the people that work in those factories. The fact that areas developed to house hundreds of thousands of people are empty indicates that all the money, labor and materials used to build them was mis-allocated. Eventually the pace of new construction must slow dramatically until the excess supply is absorbed. That general observation is the way in which the US and Chinese busts are the same. Where they are different is in how much the Chinese economy is dedicated to construction/real estate development/etc. In the US we went from building 1.4 million new homes per year to under 300 thousand. What happens to all the Chinese construction workers and factory workers when demand for new construction in China falls by 75-80%? What happens to the Australian property bubble when China stops buying all the raw materials they’ve needed to build their empty cities?

    1. What happens to the Australian property bubble when China stops buying all the raw materials they’ve needed to build their empty cities?

      Bring it on. Maybe then my rent will stop increasing twice as fast as the consumer price index.

  6. “Unlike the US bubble, the Chinese property bubble isn’t founded on cheap credit, which makes the analyst hosting the show believe that it won’t burst in the same way as American on.”

    The video does not appear to support this statement. Where do you think the development companies got the money to build those buildings? The difference is that, as the analyst noted, China is a command economy. Their government told the banks to lend and they did, just as some people here in the U.S. wanted. The result is as noted: even more malinvestment and empty buildings, and even more of a divide between what people need and what their government-distorted economy is building.

    The only way for normal Chinese to be able to afford to live in these cities would be for the development companies to go bankrupt. Then the prices can come down to what the market actually supports. That is also being prevented by the Chinese government, because it would show up as a massive GDP contraction. Sooner or later, something has to give, and when it does, the crash will make the American crash look positively minor.

    In short, this is the precise policy the U.S. government has attempted to implement: first creating the bubble, then supporting housing prices by trying to prop up GDP with money creation – but without any semblance of market restraint. It should be obvious that such a path is entirely unsustainable and, as the analyst noted, likely to be actively dangerous.

  7. I agree that this housing bubble won’t burst, soon. China’s population means that normal “laws” we take for granted, like supply and demand, don’t work right (think Fringe universe). Ex. my building in Beijing is 50% occupied, there are five other buildings under construction across the street — yet rates are going up 20-30 percent YOY. Weird huh?

    But what I’m worried about is that when the One Child Policy causes China’s population to plummet in 20-to years, there’s not going to be anyone to sell all this real-estate to — at least not anyone who can afford the going rates.

  8. Is it possible to make a news piece about China where the narrator talks in a normal tone of voice, and where there is not sinister music in the background?

    1. I believe the sinister music is now legally mandated, as test audiences found it less disturbing than the sound of political dissidents being parted out.

  9. Infrastructure overproduction is not an inherently terrible thing. Investors will lose their shirts, of course, but the real value of the infrastructure (in the sense of the amount of future economic benefits that will be able to be derived from it) will not evaporate even as the market value of the infrastructure falls to zero. The infrastructure will be snapped up for a song, after which point it will be deployed in an economically useful manner, allowing for significant long-term growth. This is precisely what happened, say, after the dot-com crash with the massive amounts of fibre laid, but not lit up, at the end of the 1990s. Actually, the fate of all of the harebrained dot-com companies after the crash provides a good contrast to this, highlighting the difference between infrastructure overproduction and a financial bubble.

    The more important question therefore, is not about the fate of the unused housing (cut its price 100x and it will all be bought in an eye blink by people who will strongly benefit from no longer having to live in shitty conditions), but where the money for the construction is coming from, and how will these investors feel about losing all of it. In the US, the investors were the homeowners (who either took on massive debt to buy housing or relied on their rising home values to take on greater consumer debt) and the high flying financial institutions who took on, repackaged, and insured the debt of the former. So when prices collapsed, everyone was screwed. If, in China, most of the financing for this massive construction comes from the government, then the nose-diving prices on unoccupied property should not bring about excessive financial difficulties within the country. It is not as if the Chinese government is short on cash – selling off its foreign reserves alone would cover all of these property losses many times over.

    1. @andrei:

      Prices WILL drop, and properties WILL be picked up for a song and the infrastructure WILL be re-deployed. But these things will not happen in a vaccuum. As you said, investors will lose their shirts. But what does it mean for future consumption when millions of people lose hundreds of thousands of dollars or more? What does it mean for jobs when there is a giant contraction in development? Over 50% of their economy is dedicated to commercial and residential development (and the manufacture of materials that go into those buildings). When a bubble bursts it take a long time for re-deployment to happen, and in this case tens of millions of people could be thrown out of work.

      If those 64 million apartments selling for $125,000 dropped 80% then a working couple making the average 6,000 wage could afford one. But how many people will be going to a salon to have their hair and nails done if 40 million people have lost their jobs in the construction industry? There is going to be contraction everywhere and it’s going to be a mess.

      1. The rate of income growth in China, coupled with the coming demographic shortage of new workers entering the workforce, suggests that the high-end won’t fall “80%” but will continue to be demanded by new wealth. Admittedly, there is too much high-end stuff coming online, but I’ve thought that for years in China.

        “Affordable” housing is hard to calibrate in an economy growing so quickly. There are rural Chinese who have a living standard that has been flat for 1,000 years. What do you build for these people when they migrate to cities? What will they want in 5 years? If I were developing there I would prefer to build for people who have cash, now.

  10. If 64 million houses are empty (according to the analyst) and there are 3 Chinese in every household with 1.2 billion Chinese in total, than you talk about 16% empty houses. A very crude calculation offcourse, but if it’s roughly what’s happening, than they will be in for interesting times!

  11. @andrei – Nice to read your comment. It’s so difficult to get real truth on China when one always has to carefully separate facts from the political angles to all these stories.

    I often wonder however, whether this is not a premeditated bubble. From what I understand, an overheating economy has too much cash and cash is too readily available. By requiring banks to keep larger reserves and to ask for more buyer participation when giving loans, money is made more difficult to obtain. Similarly, the government has tons of cash (um, largely in the depreciating and ever-less relevant US currency, cf latest news re BRICS). What to do with it? Blow it on “stuff”. Thousands of km of highways, new cities, etc. People who do buy the apartments for investment are parting with large amounts of cash that will disappear. Here is another way that cash is being removed from the economy.

    However, andrei, I am not sure it’s such a simple case for China to sell off its foreign reserves. Most are in US bonds. A full-scale sale would have dire repercussions for the US, leaving it unable to import as much from China. It would perhaps be simpler for the Chinese to simply walk in, change the locks, and say “We own this place now, respect mah authorita!” ;-)

    Frankly, I think such things should be allowed. If a country is so poorly managed that it lands in more debt than it can handle, it should be forced to sell off assets or lose sovereignty. Still don’t understand why the EU was so generous with Greece – as the Germans said, they should have sold off their islands. Anyway, that’s going too far off-topic, sorry.

    1. It would perhaps be simpler for the Chinese to simply walk in, change the locks, and say “We own this place now, respect mah authorita!”

      That would be hilarious. With a bit of luck, they’d take one look at the TSA and think that it was a little de trop even for China.

  12. Often development authorities in China require a combination of uses before approving a development. Quality (expensive) housing is most profitable, so developers want to focus on that. In order to get the housing they want approved, often they also have to commit to building associated office and retail space that is absolutely not needed, and probably never will be. The developers know this and build out the ancillary space to standards you might expect. It is my understanding that some of the most extreme examples are Potemkin buildings that really have no practial use and aren’t really complete.

    Now, there are a few mega projects in China that have just gone haywire–giant malls, etc, and those are artifacts of a command economy, mispriced capital, crony lending and bizarre regionalist grandiose grouthink.

  13. When the Chinese bubble bursts they’ll take the world down with them. It looks like when they burst it will be social unrest. So I might suppose a lot of that manufacturing will just go offline.

    Did you see all the cheap crap in that toy store? No doubt about it, the Chinese make crap for themselves, even crappier than the stuff they make for us.

  14. “tens of millions of people … thrown out of work” makes one heck of an army. A belligerent nation could do a lot of damage with an army like that.

  15. “Unlike the US bubble, the Chinese property bubble isn’t founded on cheap credit, which makes the analyst hosting the show believe that it won’t burst in the same way as American one.”

    Sort of. A good chunk of cheap credit is being lent to state enterprises. They’re not directly lent to individuals as much. This massive construction is still based on cheap credit.

    BUT China’s economy is much different then the States. They’re facing inflation problems, for instance. Thus, it is true China’s property bubble burst won’t be the same as the American one.

    Meanwhile here in Canada, we’re facing our own property bubble and I think we’re seeing deflation. Yet prices, for consumer goods are rising at the same time.

  16. China has one BIG advantage. Its a communist country.

    After the speculators fail, they’ll dump all of this on the government as their last resort.

    The government will then, since they’re under no illusions about market economy, will in turn accept all of this developed property and give, yes give, it to their citizenry.

    What would be absolutely impossible to do in the United States is quite easy to do in China.

    The government of the United States only owes anything to those who can afford it (that explains why there is no health care and why all those foreclosed homes are blighting the cityscapes.)

    The government of China will simply do whatever is necessary and it will USE the developed real-estate.

    As far as the Chinese government is concerned, its a win-win.

    They let private enterprise loose, and if it didn’t work, they’re still ahead by all that was done.

  17. Was I the only one hoping that when I clicked on the youtube video, the voice over would start with: “These are just a few of the images we’ve recorded. And you can see, it wasn’t what we thought. There’s been no war here and no terraforming event…”

  18. Watching this, and thinking about what has happened to Ai Weiwei and his supporters, I cannot help but wonder if the people they interviewed will be safe afterwards.

    That toy shop owner, for instance, would be extremely easy to track down. If local police were paranoid about the Western press getting in there and shooting video of an empty mall, how do they feel about a local businessman opining that the mall will fail? What are the chances that he’ll be “visited” by police at his shop or home in the near future?

    The biggest problem is that the average citizen most likely doesn’t realise how dangerous it is to speak out against the government, because the government security forces’ actions in suppressing dissent are themselves censored. The property developer guy understood, and the “prominent sociologist” obviously has enough political stature to get away with it, but I would think that the average Joes featured here are being put at risk.

  19. Not letting the proletariat live in those empty apartments seems rather…. countererevolutionary, doesn’t it?

    Oh wait, China’s not *really* communist.

  20. Call me cynical, but it looks like the legions of speculative investors are being set up for a fall.

    Just get everything sold off in time for the peak of the bubble, then when it all collapses, the government is shocked… shocked to find gambling and speculation going on.

    Then it’s time to blame the blame the speculators, hand out house keys to the people who were recently living 9 to an apartment (dividing and ruling as they go) and get ready to plunge into the next bubble.

    Yes, I know, call me cynical.

  21. I agree that it seems a bit short sighted to think this stuff is going to go to waste. It’s initially overpriced, perhaps, but that will be taken care of over time whether by the market (such as it exists) or the government.

    I’ve a friend in Shanghai who has a university degree and works in IT. Average wage for young people in IT in Shanghai is maybe $4000-4500 US a year. As an aside, more business-y type jobs apparently pay more – kind of different from the US – despite needing less specialized education. Point is though that even educated people working in tech or whatever don’t make very much, and it’s ludicrous to think the developers of these kinds of places don’t realize that.

    What they do know is that people from the countryside – which is still essentially third-world across much of the country – are moving to the cities for work. It’ll take time, but this is raising wages and prices already. As the city populations grow – and they’re already overcrowded – they’ll need to expand, right into these “ghost” areas, which conveniently are already developed.

    Would this happen with a freer economy? Perhaps not, although it does happen as the housing bubble in the US showed – still tons of empty houses in new developments in e.g. Victorville/Apple Valley in CA – which is a really awful place BTW. However, it does show long-term planning (perhaps an accidental side effect?), which rarely happens in the US where those with money only invest in things which will provide quick profits. I don’t see long-term planning, even if it means “ghost” towns in the short term, a bad thing at all – in fact I think it’s great. We could use that in the US.

  22. As pointed out in the video – home buyers have to put up 50% and pay the balance off in 3 years. Certainly that is helping to keep the places empty – but in a good way maybe? In the US, you can get a house you can’t afford by paying for it for 30 years. In the Chinese model, if someone has purchased one of these homes, indications are that they can afford it, and they are true “homeowners”. In the US, the housing cost vs. monthly income disparatity is the same, but few Americans are willing to work and save the amounts needed to purchase the size and quality home they feel “entitled” to, so they enter a long term agreement with a bank for better or worse. I see a chinese bubble burst having less impact – it just means falling prices on empty units, not on amounts that banks have given to greedy individuals.

  23. Turns out we live in a technical reality. You have just seen what is capable when we put machines, resources and people to work constructing shelters from the elements, safe places to eat, sleep and socialise.

    The Venus Project covers this in super-granularity. TVP calls for a circular planned city with all the infrastructure built in from day one.

    You are more than a consumer. You are more than the sum of your bank balance. You are a spiritual being having a human experience.

  24. My understanding is that a lot of this is brought about by the fact that there are only so many things the Chinese population can invest in. They can’t by US munis, or European equities. They can buy into the Chinese stock market, or they can buy property. Banks pay interest rates lower than inflation, so you end up losing money.

    The bubble may burst once there are other opportunities for investors.

  25. I agree with many comments in here.
    China economy is a commanded. Plus their government has a huge cash reserve, saving, surplus. Their government, as a last resort, may step in to absorb the lost, prevent a catastrophe bust.

  26. Australia is going to get slaughtered when this bubble bursts. It’s whole economy is geared towards the extraction and export of minerals to China. Once China’s housing marked implodes, demand for Australian minerals will cease overnight and so will the Australian economy. If you’ve got any Australian shares or a house there SELL NOW!

  27. Ah the future of china looks to be interesting. I also see their propaganda service has started posting here. I wounder if this site is now blocked in China?

    1. Phantom Cities and Economy.

    2. Over abundance of Males vs Females. Thanks to One Child per family laws. What do you do with 50 Million Males who can not find a mate or have a family….. Army?

    Since the US government has managed to piss off so many other governments there are rumors certain countries are supplying China with oil at below market costs. What happens when that dries up?

    Well, we will see. Hmm I wonder if that will be censored by China also. heh We can damn well make sure of that with two words.
    Free Tibet!

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