The Chinese government has made significant efforts to stimulate urban growth. Chief among the advantages seen is that urban workers maker more than their rural counterparts, enabling them to spend more and stimulate the domestic economy. This growth must occur to fill the void as the comparative advantage of Chinese declines.
Unfortunately, several massive projects to build new urban areas from scratch have utterly failed. The Wall Street Journal reports Tieling New City, designed for 60,000 inhabitants, remains a ghost town. No new businesses are moving in, meaning no jobs, or any incentive for individuals to move from the old city to the new city. Elsewhere in China, CNN reports that the New South China Mall opened in 2005 in Guangdong Province, remains empty. Clocking in at a mere 5 million square feet, it was built to be the worlds largest shopping mall. Tianducheng, in Hangzhou Province, is a replica of Paris built to house 10,000 people. It also remains empty, a brand new ghost town, replete with a perfect replica of the Eiffel Tower. This is clearly a common plight across China.
While it is expected that 250 million more people will move from rural to urban areas over the next 20 years, these small cities do not seem to be as attractive to potential inhabitants or employers. With so many repeated failures, how come similar developments continue being built? When these facilities were first planned, capital costs were incredibly low. Now, the cost of capital is rising, but communities such as Tieling continue to be built. The municipality has devoted another $1.3 billion to new real estate projects in the new city. While the city’s 2013 budget forecast asserted, “Some long-term problems and imbalances have accumulated in the management of the city’s finances,” no indication was given for how this project would be funded. How will these white elephants be paid for if no one lives there?
That these new developments are slow to populate should not be surprising. Decades ago, in Qin village, as described in Huaiyin Li’s work, an a new town center was built. Though it was unpopular and only slowly adopted, it slowly gained traction. Hopefully for the developers of China’s ghost cities, residents and businesses will arrive sooner rather than later. If no one is forced to live in these cities, what will be the catalyst for growth?
The first paragraph seemed a bit confusing. I enjoyed the rest however. I did not know about the mini Paris in China. I have read about this issue in the Economist. Both articles seemed to think that it was a long shot for any actual development in these areas to take hold long term. It would be interesting to see what kind of financing was done on these type projects. If financing was done locally, nationally, or internationally. China strives to make an impact by being the biggest and best. As urbanization continues hopefully these towns will open factories like the Qin village did to spark new homeowners to move to the area.
We have an entire book that looks at this issue, and includes an analysis of “ghost” cities, and of the sources of urban finance. However, there are many forces for [and potentially against] urbanization. Surely higher wages are a function of the supply and demand for labor, and needs to be adjusted for the relative cost of living of rural and urban locations.
What positive externalities accompany urbanization, that might lead to a desire to foster cities from a policy perspective? What are potential negative externalities? Note that as economists these must be phrased relative to an alternative, here remaining in the countryside.