Where will it end?

“Ghost city” of Ordos in Inner Mongolia

Recently I’ve been finding more and more articles talking about how China economic bubble is about to burst and how the Chinese government has decided to gamble with their own population to try to stop this from happening.

China has announced a plan to move 250 million people into high rises by 2025… 250 million! This is almost the size of the USA population.

The Chinese government plans to do this by paying rural farmers a stipend for their land, which it then paves over and develops high rises and other commercial buildings.

This means farmers who used to farm on their land have to look for something else to do, the government plans to use these same farmers (unskilled workers) to help them build the new infrastructure.

The question is what happens when all the new infrastructure is completed. If new long-term jobs are not created based on domestic consumption and global exports, the government will end up with a lot of angry, idle farmers trapped in high rises (about 250 million)

One of the Chinese government major headaches has to do with Civil unrest which could get worst, much worst than it currently is, due to lack of job growth. Job growth might not be be too much of an issue based on China’s economic performance in recent years however two issues are looming in China’s horizon. One of them is the slow down of their exports due to the global downturn and the second has to do with the overbuilding boom, which lots of renowned economic analysts project will soon come to an end.

There are many study cases and figures supporting both aforementioned issues, however one that stuck with me was Barron’s article “Where will it end?” describing many of the government-driven infrastructure projects – and their failures.

– The New South China Mall, twice the size of the U.S.’s Mall of America in Minnesota, has been 99% vacant since its 2005 opening.

- A new railroad station in Wuhan is like “something out of a science-fiction movie” because of its size, which dwarfs citizens’ needs, and over-the-top architecture.

- The “ghost city” of Ordos in Inner Mongolia have become a staple, showing the eerie empty streets and deserted modern, high-rise apartment buildings, stores, and public buildings of a megapolis expected to attract more than one million people. It has been empty for the six years since its construction.

- Word came last month that Broad Group, a Chinese maker of central air-conditioning systems, had been green-lighted to break ground this month on the tallest building in the world, near the unprepossessing capital of Hunan Province, Changsha. Sky City, as the project has been dubbed, will include a hospital, school, hotel, and retail and office space in addition to living quarters. And new modular construction techniques pioneered by Broad will enable the company to build the project in just months.

The more I read about it the more I’m convinced China’s economic model is flawed and that the failure of this economic juggernaut will bring dire consequences to the world’s economic environment.

If history repeats itself the tallest building always goes up just before a major real estate bubble bursts!!!

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