A lesson from Ordos: Lie on the bed you make

By Liu Qiang
0 Comment(s)Print E-mail China.org.cn, August 10, 2013
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China's largest ghost city -- Ordos [File photo]

Ordos, a coal mining city in Inner Mongolia, is China’s largest ghost city. It may also be possible to give it another nickname: “debt city”. Ordos is allegedly facing a debt of 300 billion yuan, while its annual fiscal revenue is just over 80 billion yuan.

Ordos is the most extreme example of a Chinese housing bubble bursting, with unsold flats, unlet shops and empty office blocks. Most of the new buildings are empty or unfinished. One person even joked that in this year’s hot summer, Ordos’ economy is cooling. The city once experienced a housing boom, but the economy is now a disaster, therefore the local government is determined to come up with new ideas to bring the ghost city back to life. Ordos is focusing on tourism and has laid out plans for a summer resort. However, given the city’s high level of debt, it is not going to be easy to put them into practice.

According to Qiao Runling, deputy director of the National Development and Reform Committee’s China Center for Urban Development, there are many ghost cities in China which are buckling under the burden of debt. There are worries that Ordos, with its huge debts and years of mismanagement, will repeat Detroit’s road to bankruptcy.

In fact, no Chinese city can be allowed to go bankrupt. Nevertheless, China’s indebted cities should learn from the Detroit bankruptcy to reduce risks in their development. First of all, there is a “fake prosperity” in many China’s cities. Typically, this is a result of over-exploitation of natural resources and blind capital investment. In some cities, borrowing money and selling land to property developers are the only effective ways to raise funds. But this is not sustainable, and gradually this “artificial” prosperity will lose momentum. Efforts to revive modern ghost cities like Ordos are being made. China's local government debt, if not being better managed, might potentially pose a systematic risk greater than in Detroit.

Secondly, don’t rely on only one option. A city needs to have a pillar industry, but this alone is not enough. Over-reliance on the real estate industry and large-scale bank borrowing has saddled Ordos with a level of debt far higher than the city can endure. A sustainable growth model is one that is always adjustable to market conditions and encompasses a wide range of industries.

As Qiao points out, cities are expanding too quickly, which is causing more and more social problems. In the latest round of China’s urbanization, it has become common to rely increasingly on large scale investments in infrastructure and real estate. As a result, we have seen excessive “city supply”, which has contributed to the empty city phenomenon, in other words a city without jobs, a market or even residents.

If we do not want to see a bankruptcy in China on the scale of Detroit, we need to solve the ghost city crisis. Local governments should clamp down on excessive borrowing and land sales, and push through reforms to reduce the reliance on large scale investment. In order to quicken the circulation of capital and reduce the debt burdens as soon as possible, local governments should work together with the invisible hand “the Market” to reduce housing prices. They should also adjust their strategies to make full use of regional strengths.

Ordos is trying to gain a fresh start by focusing on tourism, but the crux of the matter is to find a sustainable path for Ordos. If not, it will never be possible to bring this ghost city back to life, and it may suffer an even worse fate.

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