Ghost towns haunt China housing boom

IT HAS huge reserves of coal and natural gas, a fast-growing economy and a property market so hot that virtually every house put up for sale is immediately snapped up.

There is just one thing largely missing in the city's extravagant new central district: people.

Ordos proper has 1.5 million residents. But the new version of the city - built from scratch on a huge plot of empty land 15 miles south of the old city - is all but deserted.

Broad boulevards are unimpeded by traffic in the new district, called Kangbashi New Area. Office buildings stand vacant, pedestrians are in short supply and weeds are beginning to sprout up in luxury villa developments that are devoid of residents.

Li Li, the marketing manager of an elegant restaurant in Kangbashi's mostly vacant Lido Hotel, said: "It's pretty lonely here. Most of the people who come to our restaurant are government officials and their guests. There aren't any common residents around here."

City leaders, encouraged by aggressive developers, had hoped to turn Ordos into a Chinese version of Dubai, transforming vast plots of the arid Mongolian steppe into a thriving metropolis. They even invested more than $1 billion in their visionary project.

But four years after the city government was transplanted to Kangbashi, and with tens of thousands of houses and dozens of office buildings now completed, the 12-square-mile area has been derided in the state-run newspaper China Daily as a "ghost town" monument to excess and misplaced optimism.

As China's roaring economy fuels a wild construction boom around the country, critics cite places such as Kangbashi as proof of a speculative real estate bubble they warn will eventually pop - sending shockwaves through the banking system of a country that for the past two years has been the prime engine of global growth.

Last week China surprised analysts by slightly raising a benchmark lending rate, apparently to dampen speculation in the property market. But, within China, analysts doubt the small increase in lending rates will slow the incredible building bonanza that is reaching even remote areas such as Ordos.

Kangbashi was projected to have 300,000 residents by now. And the government claims that 28,000 people live in the new area. But during a recent visit, a reporter driving around for hours with two real estate brokers saw only a handful of residents in the housing developments.

Analysts estimate there could be as many as a dozen other Chinese cities just like Ordos, with sprawling ghost town annexes. In the southern city of Kunming, a nearly 40-square-mile area called Chenggong has raised alarm because of similarly deserted roads, high-rises and government offices. And in Tianjin, in the north-east, the city spent lavishly on a huge district festooned with golf courses, hot springs and thousands of villas that are still empty five years after completion.

It might seem mere nouveau riche folly were it not for China's national goal of moving hundreds of millions of rural residents to big cities over the next decade in the hope of creating a large middle class.

But determining whether the Ordos-style expansion and re-engineering of old cities is being driven by smart planning or propelled by speculative madness is a prime challenge for Beijing policymakers.

Fearing inequality and social unrest, China's national government has struggled to rein in soaring property prices and stem the threat of inflation, even as ambitious officials continue to draw up blueprints for new megacities.

And if government-run banks balk at providing additional loans to developers, then grey-market lenders are only too happy to step in.

Patrick Chovanec, who teaches business at Tsinghua University in Beijing, says the building boom is driven by frenzied investors - not the housing needs of millions of migrating workers.

"People are using real estate as an investment, as a place to store cash - they treat it like gold," Professor Chovanec said. "They're stockpiling empty units. This is going on in cities of virtually every size."

In Ordos, in north China's sparsely populated Inner Mongolia region, cranes are everywhere as construction moves ahead on a $450 million financial district in Kangbashi, a site that will feature six high-rise office towers.

Property development in Ordos is so hot that last year housing sales in the city reached $2.4bn, up from $100m in 2004, according to government statistics. During that time the average square-foot price of commercial and residential property has risen by 260 percent to $53.

"This is a city of the future," Li Hong, a government official, said during a recent tour of Kangbashi. "We are going to build this into a centre of politics, culture and technology. That is our dream."

City leaders may be basing their optimism on the financial windfall in recent years for Ordos, which sits atop one of the world's biggest reserves of coal, whose price has soared along with China's voracious energy appetite. Formerly impoverished, the region now has a growing number of coal millionaires and the nation's highest gross domestic product per capita ($19,679), with Land Rovers a symbol of Ordos's new-found affluence.

In 2004, with Ordos tax cof-fers bulging with coal money, city officials drew up a bold expansion plan to create Kangbashi, a 30-minute drive south of the old city centre on land next to one of the region's few reservoirs. Because land auctions are a major source of fiscal income in China, part of the plan's allure was the prospect of elevating the value of property in an undeveloped area.

Some buyers were like Zhang Ting, a 26-year-old entrepreneur who is a resident of Kangbashi, having moved to Ordos this year on an entrepreneurial impulse.

"I bought two places in Kangbashi, one for my own use and one as an investment," said Zhang, who paid about $125,000 for his 2,000sq ft investment apartment. "I bought it because housing prices will definitely go up in such a new town. There is no reason to doubt it. The government has already moved in."