Recent articles from CNN to the India Times have reported on ghost town cities popping up all over China built in the image of western counterparts. Places like Thames Town outside of Shanghai have been built in the replication of western style cities. Thames town
Thames Town - Complete with British Guards
looks straight out of the United Kingdom (although reports say it was built on an Austrian design aesthetic) complete with churches, town squares and those iconic red telephone booths. An even more interesting point is that Thames town is practically disserted. Most news from China on the real estate market contains statements on how robust and healthy the housing market is, and how Chinese cities are growing at enormous speeds. Areas of Shanghai, Beijing and Hong Kong have real estate prices that rival those of the Western World; so this would appear true. But is China’s real estate bubble about to burst?
Photo credit: Flickr user triplefivechina
Photo credit: Flickr user triplefivechina
Reports and experts state that the Chinese housing market could be over-valued by a whopping 70%, and that millions of new homes go under used and deserted. However I think that this is an overstatement. There are a number of different political and economic mechanisms that are working within China that require the Chinese government to making such an aggressive move towards “oversupplying housing”. The first and most prominent trend today is the massive amount of migration occurring within the nation. Within the next 20 years it is estimated that an additional 200-250 Chinese workers will move to the City from rural areas in search of jobs. This means that China will have to have to create a large amount of cities and housing in an extremely short amount of time. The second trend is an additional 100 million Chinese workers are expected to escalate the capitalistic ladder out of poverty and into middleclass-dom during this time– leaving existing cities with a large amount of demand for better accommodations. The third and most unique factor is how the Chinese government enforces its living and residential permit system known as Hukou (pronounced like who-cow). The Hukou system is a regulatory system that designates where a person/household may reside by geographic area. For instance a farmer from the country side would have to obtain a Hukou city permit in order to legally move into a city to find work. Think of it as a quota immigration system in between two countries, western and eastern China and that will give you some idea of how it works. In an attempt to control migration the Hukou system (while possibly ineffective – just like other quota systems) could be used to steer workers into these smaller newer cities being built and take some of the mass migration pressures away from the larger cities that are overcrowded.
Regardless of the current conditions the government has committed itself to creating 20 cities a year for the next 20 years. The strong intervention approach with the housing market and urban growth that the Chinese government has taken is unlike anything the world has ever seen. It will be fascinating to see how it will play out.
-Adam
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