Why Jim Chanos is Wrong About China's "Ghost Cities"

Email

China's "ghost cities" present the West with the shocking images of vast urban areas that sit nearly empty.

In a striking report, shown recently on CBS News' "60 Minutes,"there are rows of high-rise apartment buildings, tracts full of suburban American-sized detached homes and  imposing government edifices in China's western  desert that are empty and utterly devoid of any signs of life.

Their existence has raised more than a few red flags among investors.

Famed hedge fund manager Jim Chanos, for one, warns that these ghost cities represent the ominous specter of a bubble and that China should be relegated to ten-foot pole status.

"Anything that's depending on the Chinese economic miracle I would be careful of," Chanos said in a recent "Squawk Box" interview.

A long time China bear, he's part of an amen corner of those who say that China's ghost cities are a sign of some trickery in the way the Chinese government presents its GDP to the world.  

They claim that it's heavily dependent on infrastructure construction, and what we are seeing now is build-out running amok, without purpose, a complete waste of money.

As a result all of them see China as on the way out, a risky proposition, a sinking ship, or a fool's errand.

But, as it turns out, all of them are dead wrong. 

According to Keith Fitz-Gerald, Chief Investment Strategist at Money Map Press, all of them lack a complete understanding of the realities on the ground there.

As long-time resident of Asia, and a keen, street-level observer of the Chinese economy, Keith would know. Not surprisingly, his view is quite different from the doom 'n gloom crowd.

"They perpetually make this argument about the ghost cities," says Keith, "What makes these cities seem different is the numbers, and that they're being built on a scale that's just incomprehensible to Western analysts." 

But the "ghost cities" are not a uniquely Chinese phenomenon, and their scale is really only a matter of degree.

The truth is there are large, empty developments all over the world, including the United States. In those countries, "ghost cities" happen wherever developers may have misjudged demand. The difference is China's "ghost cities" appear on a grand scale, because China itself is on a grand scale.  

China's "Ghost Cities": The Promise of Great Expectations

On the contrary, Keith believes China's "ghost cities" herald great expectations.

Join the conversation. Click here to jump to comments…

  1. Joe | May 16, 2013

    I was in China in a small city called Luoyang. I witnessed one of those ghost city's as most chinese city's appear to have them. The Chinese people assured me that it wasn't an issue as most of the property in the city was already bought up even though nobody lived there as yet. The Chinese don't have gardens, house maintenance fees being very cheap compared with the west or even mass entertainment. They therefore have relatively speaking little to spend their money on. A second apartment bought in advance for their children is common

    • Jared | May 18, 2013

      Joe, you present anecdotal evidence at best. "Word of mouth" in a communist country where centrally planned infrastructure driven 'growth' is the preferred mechanism instead of free market economics; makes your claim weak and suspicious.

      What is happening, is that the Chinese (a minority) are buying up apartments and real-estate, then selling them for profit. This in turn drives the prices up even higher than they already should be for ordinary Chinese middle income earners. Vice TV did a great documentary on these ghost cities. And many of them remain 95% empty, even after FIVE YEARS from the time they were built!

      i mean, if this growth mechanism (which Chinese leaders have called unsustainable) were at all sustainable, then the Soviet Union wouldn't have collapsed, Japan wouldn't have collapsed, Dubai wouldn't have suffered a property bubble burst, and the US and pretty much every other country would be employing a similar economic model to maximize profits along with employment…But that is just not reality.

      Also, the Chinese GDP has "Quadrupled" in the past 10 years, yet the Chinese stock Market has remained virtually stagnant. Its down 9% year on year today…this is not indicative of a healthy growth rate of almost 8%…thats because the real Chinese economy is not growing anywhere near that rate of growth, and hasn't been for quite some time. Real Chinese growth is probably in the neighborhood of 2-4%…which is currently higher than the actual electricity growth in China (which historically has been a reliable barometer to gauge actual growth in a country like China.)

      I'm afraid the China bears are right, and it won't be pretty for China when their economic house of cards does finally come crashing down.

      • Amit M | May 20, 2013

        Agreed Jared< I've been tracking the automotive manufacturing industry in China for sometime now. It has been adding overcapacity for years, as local governments support smaller manufacturers to maintain their GDP/employment numbers. So excess capacity is not only a real estate/automotive issue, it's actually a system-wide phenomenon. And howsoever hard may the government try, the market forces (of supply and demand equilibrium) will catch up one day. It may be in a phased manner, so there might not be an overnight crash. But such a correction seems inevitable.

    • LEF | June 21, 2013

      cities, not city's….

  2. Cow Teng | June 12, 2013

    Of course each country may have its woes, in the form of ghost apartments, suburbs, developments but cities is something else. Spain, US, Angola, Greece, UK, Brasil, India and RSA have unoccupied buildings/new developments. China has cities and malls that are depreciating fast and are not mantained. 13 years of no occupancy spells doom and gloom.

  3. Tim | August 16, 2013

    The 60 Minutes report seems to be sensationalized. This guy went to the same city and found it thriving,

    http://thechinachronicle.com/zhengzhou-zhengdong-china-largest-ghost-city/

Leave a Reply

Your email address will not be published. Required fields are marked *


× 1 = seven

Some HTML is OK