Saturday, August 03, 2013

China’s Replica of Paris is a Ghost Town

China’s real estate industry has the propensity of imitating famous European architectures. 
From the Reuters:
Tianducheng, a gated community near Hangzhou, capital of coastal Zhejiang province, boasts its own Arc de Triomphe and rows of European-style villas to attract China's newly wealthy.

"(It) can house up to 100,000 people comfortably," said Lu Xiaotian, a director at the Zhejiang Guangsha Co. Ltd, the estate's developer.
Unfortunately, the European fashioned gated community has reportedly been a ghost town.

Some pictures courtesy of Business Insider

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The above is just one of the numerous ghost projects epitomizing the Chinese government’s assimilation of policies that promotes “abolishing slumps and thus keeping us permanently in a quasi-boom” grounded on the misinterpretation of Say’s law of “supply creates its own demand” or from a rigid adaptation from Kevin Costner’s Field of Dreams, “if you build they will come”. This also signifies as an example of wastage of capital from centrally planned projects.

Incidentally the developer, Zhejiang Guangsha Co Ltd is a publicly listed company at Shanghai, which represents a “province share holding system” or largely a local state owned owned enterprise (SoE) with private sector facet. 

Many private companies are vehicles used by the local state to promote the political objectives of the national government, as well as, the career goals of local politicians. Thus as previously discussed, the interests of the private sector and the state has been complexly interwoven. Yet the same sectors have acquired huge debts from boondoggles as the above that has put the Chinese economy in jeopardy or has raised the risks of a China bubble bust with far reaching ramifications.

The sustainability or viability of these massive credit fueled “build and they will come” social projects have recently been under intense scrutiny by the national government and by the markets.

Interesting times indeed.

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