And I've got a strong urge to fly
But I got nowhere to fly to
Ooh, babe when I pick up the phone
There's still nobody home
There's an interesting article in the Financial Times cataloguing the emergence of ghost cities in the wake of massive property investment borne of the PRC telling government banks to open the lending spigots wide open. (As you can see above, it's evoked a classic Pink Floyd number, too.) The essential question is whether this torrent is being put to good use of will go to waste. Two arguments--pro and con--are being advanced. Either all this investment is being thrown away since they're building new edifices for which no one will come, or it is just what is needed to accommodate China's still-burgeoning growth going forward. As with most things, I believe that the truth lies somewhere in between, though exactly where that lies is still up in the air:
Chenggong is a new town near Kunming, one of the main cities in the south-west of China. Construction started in 2003 and the results are now apparent in 13 immaculate local government buildings, each clad in marble tiles. A high school boasts an impressive indoor swimming pool and several of the region’s main universities have built large campuses. Pristine high-rise apartment blocks stand in rows, their new windows glinting in the subtropical sun.Certainly, these levels of investment as a percentage of GDP are unparalleled even in the context of Asian development history. In the meantime, cue up The Wall.
The one drawback: at the moment, Chenggong is almost completely empty. Its wide streets are all but bereft of traffic, a bank branch has no customers and leaves collect in the foyers of the municipal offices.
It is places such as Chenggong that are starting to divide opinion about what is really happening in the Chinese economy. China was the big winner from the global crisis, with its economy expanding by 8.7 per cent last year amid recession elsewhere. But as the country returns from its lunar new year holiday, divisions are emerging over the long-term impact of the stimulus package implemented by Beijing to carry it through the international downturn.
While some regard China as having made forward-looking investments in infrastructure and urban planning that will lay the foundations for a new burst of growth, others fear last year’s recovery is really a mirage based on an investment bubble. It is also a crucial question for the fragile global economy. If China’s rebound were to fizzle, it could easily drag the rest of the world into a double-dip recession.
Within the government, there is sharp debate about the risks from last year’s credit binge, which saw the number of new loans double. Some officials want to keep the investment taps open because they fear the economy is still weak, while others worry about looming threats of inflation and overcapacity.
Among professional investors, views are even more polarised. Anthony Bolton, the prominent British investor, recently announced he was moving to Hong Kong to manage a China fund and purred about “the effectiveness of the centrally run economy”. Yet Jim Chanos, the hedge fund manager best known for seeing the fiction in Enron’s accounts, says the very same centrally planned system has created “an unprecedented bubble” in investment, especially in real estate. Both sides can find ammunition for their arguments in Chenggong.