Will ghost cities haunt China?(2)

Changzhou's population broke 4.5 million in 2012, a nearly 20 percent increase compared with 10 years ago. However, figures show most of this growth came from migrant workers brought in to build the city and who have limited spending power.

Compared with nearby cities such as Suzhou and Nanjing in Jiangsu Province, Changzhou holds far less attraction for the middle class due to its lack of schools, institutions and enterprises.

Previous media reports questioned if the city will ever be able to attract enough popularity to consume its huge property stock in the future.

But the voice of the local government seems to be optimistic. According to Lu Jingfeng, director of real estate supervision at the Changzhou Housing Administration Bureau, the trading volume of commercial housing in Changzhou increased by 29 percent in the first half of this year.

Last year, the trading volume of commercial housing in the city reached 6.58 million square meters, or 62,093 residences, only second to Nanjing and Suzhou in Jiangsu Province.

"The housing prices in Changzhou are much lower than those in first-tier cities which is helpful for building up demand," Lu told the Global Times.

Lu also clarified that opinions about the high amounts of unused property were misguided. He said more than half of the city's 10 million square meters of real estate, built since 2009, either still belonged to developers or was intended to be used to resettle people displaced from their original homes.

"It is unscientific to compare Changzhou with a city like Ordos. Not one project stopped in Changzhou last year and prices have not fallen like they have there. I think media have exaggerated the facts," Lu added.

Lu said that the rapid property construction in Changzhou is because "it is happening everywhere in China now." But he believes the vacancy situation will change as the city becomes more mature in the next few years.

Question of ghost cities

The ghost city phenomenon has attracted wide attention at home and abroad, with some foreign media speculating that these cities have become a symbol of China's economy downturn.

The best-known ghost city might be Ordos. It used to be one of the richest cities in the mainland and was nicknamed "China's Dubai," but its economy is now in a free fall.

The rapid growth of the city's GDP was created by the coal-driven industry over the past decade. A large part of the wealth it accumulated through the coal industry was then funneled into the real estate sector. Money gained from property investment went back into the coal industry or was re-invested into more real estate, forming a vicious circle.

However, the coal industry soon suffered from a slide in demand as well as increasing competition from cheaper imported coal. As a result, when the local economy cooled, the real estate bubble burst.

A similar story also happened in Hebi, Henan province, where an initial boom due to coal led to a collapse after resources dried up in the 1990s. The local government then started to build a brand new city 40 kilometers away in 1992. But a media report this May called it an "empty city" as few people and industries were found in the new town, even after 20 years of development.

Learning from Ordos, many other local governments are now trying hard to promote real industries in new development zones rather than solely depending on a real estate-driven economy to keep people around.

As early as 2009, the Changzhou government claimed they were launching a series of preferential policies to attract major new industries including equipment manufacturing, new energy, new materials, electronic information, biotech and medicine to come to the area to enhance their competitiveness for talents.

"With the high-speed train having formed a fast channel in the Yangtze River Delta area and tight relations among cities in the area, I believe the economy in Changzhou will continue to boom in the future," said Lu.

Urbanization puzzle

Experts said that beyond the "ghost cities" phenomenon, the real urgency is the need to reflect on current urbanization patterns in China.

"China is so big and cities are very different from each other due to their particular situations. To be frank, I think that having the occasional vacancy problem is normal during any development process," Li Zhanjun, director of the Research and Development Institute at E-house China told the Global Times

"But the lesson of cities like Ordos for local governments is that a well-developed city needs to build up a well-developed industrial chain and well-balanced industrial structure first. If the local authority's strategy is to attract popularity by just building a city, then it is taking great risks for its economic future," Li noted.

Meanwhile, Liu Yuan, senior manager of Centaline Property real estate agency in Shanghai told the Global Times that prices are a key indicator of a property bubble.

"New cities can't price their real estate too high for people to afford," Liu said. While such a move might initially be used to attract demand and interest from a high-class or wealthy clientele, the real estate market in China is tired and high prices will simply put people off.