8 ms·

China: High GDP, 64 million empty apartments.

140 points by zacharyvoase 15y ago

rorrr 15y ago
This was posted a bunch of times http://news.ycombinator.com/item?id=2431869 http://news.ycombinator.com/item?id=2431869 http://news.ycombinator.com/item?id=2386584 http://news.ycombinator.com/item?id=2386584 http://news.ycombinator.com/item?id=2669432 http://news.ycombinator.com/item?id=2669432
trevelyan 15y ago
Nicely done video, but I think it gets the story wrong. The bubble is not illogical to start with. Thanks to currency controls most people have no way to invest outside China. The Shanghai stock market meanwhile has huge problems with adverse selection (bad companies pay to list -- successful companies list in Hong Kong or the United States). There are no property taxes in most of China, so people with money park it in real estate. And developers keep building these assets because they're insulated from loss in any case. If you're connected you can get zero/low cost loans. And local governments are complicit because they make money "selling" the land and don't have alternate income sources. So no-one really cares if someone builds a massive complex and it doesn't sell: the government and developers are covered by the bank, and the bank is covered by the Central Government. This is just a distributional game in which China pays for infrastructure by using public policy to inflate bank earnings and then banks approve questionable local projects. And sometimes these things make a lot of money, so it isn't as if they're taking a hit on every single complex.
- yaix 15y ago
  This is mostly what happens. Additionally, these new apartment complexes are often build in "new areas" of the bigger cities, to grow the city. China is trying hard to reach a level of urbanization comparable to the west, so they need to "grow their cities" somewhat aggressively. I have lived in two of those newly build complexes myself. First there is not much around, roads, maybe a supermarket and a few stores. The local gov't or the developer offer the shop owners rent-free for a year or two to get them to set up their stores in the new area, because there are almost no people yet. But two or three years later, the apartments are mostly filled (either rented or sold) and the shops are paying rent too, new supermarket have arrived, and suddenly the area has become part of the city center. Same goes for big roads. In the southern part of the town I live in, there is a huge road grid (6 lane roads, etc) already build, but there is only grassland. Come back in five to ten years, and it will be inner city area. Smart to finish the roads before it is crowded.
  - j2d2j2d2 15y ago
    Everything you've said assumes these cities are going to explode with 1) enough people to buy the apartments and 2) enough people who can afford them. Could you clarify your view on those two issues?
    - jhancock 15y ago
      Why does the price on failed buildings have to stay high? Why couldn't the government (through a bank, likely) reclaim a bankrupt project, restructure its books and basically "give away" the units? China certainly has its share of problems. Having lots of extra housing for people to eventually move into is far from the top 10. Something related that is a bigger deal is the energy of heating and cooling housing built without 21st century insulation. I think its useful to _not_ compare how the U.S. and EU have handled bailing out its financial institutions. China does not have to bail out its financial institutions in the same way if and when it comes to that. They could simply just let the rich take a haircut and give away a bunch of empty apartments to cool the angry masses.
      - trevelyan 15y ago
        Hey Jon, What is Shanghai like these days? In Beijing there is a ton of vacant commercial real estate, but most of it seems to be owned by organizations with no need to lease (else why not lower prices?). Where developments like SOHO are competing is by selling rather than leasing smaller condo-style units. And while the market for apartments has slowed down, there are still people buying. Fifth ring road near Echo's place is 30,000 RMB per square meter. I wonder more what the actual cost structure is for the complexes cited in these videos. They should be the lowest of all since they're being built on satellite territories. That said, even in a worst case scenario of total default, I wouldn't expect banks to seize the property of people they've been pressured to lend money to. And I wouldn't expect the property to remain "unowned" if it seemed like that would happen. The developers would just sell the assets to a property management company and go nominally bankrupt. Agree about the differences between China, US and EU too, but my guess is that banks are safe, and that as individual markets get overdeveloped local governments will start adopting property taxes to raise revenue. This is NOT going to be popular with people who've already taken out a 30-year mortgage to buy a 60 square meter apartment, but that coupled with price stagnation should curtail people's tendencies to treat real estate as assets for investment instead of places to live, and push prices to whatever is logical given demographic and migration trends. Soft landing?
- joe_the_user 15y ago
  The bubble is not illogical to start with. Thanks to currency controls most people have no way to invest outside China. Now wait a sec. The bubble is illogical. That it involves individuals making rational choices in a distorted market doesn't exempt it at all. In fact, it is a fine illustration of how distorted, artificial markets produce irrational results despite each person making choices that are logical for them.
  - stretchwithme 15y ago
    Yep, its the artificial markets. People have no way of investing outside of Earth either, but that doesn't mean investment bubbles have to happen. Instead of building things people don't need, in a natural market, things are made that people are willing to pay for with their own money. The building boom in China has been directed by government. Banks were told to loan. The government also created the housing boom in the US, through cheap money and loosening lending standards. In both cases, the government created incentives to do stupid things. And the markets responded as markets do to incentives.
    - wisty 15y ago
      I dunno. The government incentives aren't that big, and people do stupid stuff with and without government help. There's no doubt that the government (and neo-liberal mainstream economists) failed to prevent the bubbles. But there's other factors at play. Housing takes a long time to reach an equilibrium. It can take decades for people to move out of a house that's too big for them. The market just doesn't respond quickly, which is a recipe for instability and chaos (just ask anyone who's studied control theory, or chaos theory). There might be a few players who are smart enough to see this, but the average real estate investor isn't a Wall Street quant, or even a trader. They are a 20-or-30-something year old, with no financial nous at all. They see 10 years of solid growth (due to demographic changes, income growth, and government intervention), jump on the wagon, and that creates a little more impetus. Do you really think that the government is entirely pro-cyclical? That they choke supply, and give out free money while prices are rising; and increase supply and curtail loans while prices are falling? I doubt it. And if the Chinese government is to blame, why is it so damn regional? The Shenzhen bubble is nothing like the Beijing one, which is nothing like the Shanghai one, which is nothing like the Inner Mongolia one. Some of that is local government actions, but I dont't think it is in most places.
- westiseast 15y ago
  I'm pretty sure that fundamental economics are the same the world around - if there's no end consumer for your product, then there's a loss somewhere. It doesn't matter who covers the loss, but there's still a loss and it's not correct to say that no-one cares. The biggest fallacy I've heard recently about this housing situation is the oft' repeated "things are different in China" - you can't argue with basic maths like this. Surely the 2008 economic crisis was triggered by a similar situation, with western banks and investors ignoring fundamental economic equations?
- westiseast 15y ago
  oh, and another thing - people have no way to invest outside of China? What? Any quick google search will tell you about the hundreds of millions of government money being embezzled by officials outside of China, not to mention rich Chinese citizens legitimately taking American citizenship and investing their money overseas...
martythemaniak 15y ago
Give the empty apartments to poor folk. You solve the high income inequality and property bubble at the same time ;)
- wisty 15y ago
  Whenever that happens in China, the "poor" folk who actually get the free apartments aren't always poor. Welfare fraud is not unique to the US.
- iwwr 15y ago
  Simply maintaining these apartments may be too much even for the average city worker.
gopi 15y ago
>> There are no property taxes in most of China, so people with money park it in real estate. Exactly the case in India. Most people there park money in real estate. Also in the suburbs the official land value (determined by govt) is far less than the real market value. So investing in that kind of land is way to park black money (or corruption money). The usual real estate factors like rent-to-own don't apply, Infact the prices in the suburbs of even a 3rd tier small city like Coimbatore is more than that in a major US metro!
- yaix 15y ago
  >> There are no property taxes in most of China, so people with money park it in real estate. There are now in Shanghai, Beijing and a few other major cities. That's quite new and started just this year.
- signa11 15y ago
  >> There are no property taxes in most of China, so people with money park it in real estate. >Exactly the case in India. Most people there park money in real estate. not true. there most definitely are property taxes in india. the reason why folks park money in real-estate is that it seems to an appreciating asset not being subjected to harsh vagaries of the volatile stock market...
Game_Ender 15y ago
An article in SF Chronicle provides some good perspective on these vacancy rates in China to backup this video: http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2011/07/07/investopedia54293.DTL http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2011/07/07/... Even in the huge industrial cities of Shanghai and Beijing the vacancy rates of approximately 50% and 35%. The peak for the US during the recession was 18.5% in Michigan.
vorg 15y ago
Can't view the video from here in China, but... I've noticed lately developers/local govt tearing down buildings after evicting tenants, then canning the new building project ("running out of money", maybe), instead turning the land into a carpark. This creates more demand for unsold apartments nearby, (as well as giving vehicles somewhere other than footpaths to park on :).
- wisty 15y ago
  Or the development was found unsafe (after a number have already fallen down), or they realized that the permissions were not done correctly (or at all).
whatwhatwhat 15y ago
How many apartments are vacant in the US, just as a comparison, does anyone know? That would make the number much more meaningful. Also, are these apartments dirt cheap and do they speak english in these areas at all? Maybe they could be a haven for startups, which are somewhat less bound by geography, if they were extremely cheap. I might just be dreaming though.
- joss82 15y ago
  You may be dreaming, but you're not the only one. What would be the hurdles to get a startup running in China? The Great Firewall? It's a big country so it's always possible to find a place that fits your personal taste. For example Sanya is a tropical island. Not much infrastructure there yet though.
  - yaix 15y ago
    Great Firewall? Use a VPN, easy. (I'm doing it for many years). Sanya is not an island, its a city on the island of Hainan. Infrastructure in China is very good, especially train lines.
  - wisty 15y ago
    Hurdles? 1) Language, especially when getting stuff like visas, work permits, incorporation, etc. You can stay on non-work (or business) visas, but it's not terribly legal. As for the English standard, imagine you have a country with 1 point something billion people, and speaking English was discouraged until about 20 years ago (except if you were in intelligence). How do you teach it? Only young people tend to be fluent. Most English teachers have never left the country, or had much one-on-one interaction with people who can speak good English. Students are great at certain elements of formal written grammar, if it's in an exam setting. Vocabulary can be OK. But fluency can be a problem. 2) Red tape. It's non-existant for the old woman selling wonton soup by the side of the street (as long as she can run faster than the local city management, or can afford to give them lots of free soup), but not likely to be fun for foreign businesses. 3) Talent. I'm sure it's there, but you won't know how to find it. You can't tell if people are bright, unless you can communicated easily. Also,expect programmers with great geometry, good algorithms, and no idea how to work in a team; kinda like most countries, really. 4) Honesty. Chinese believe that "actions speak louder than words". If you don't understand this, and you won't, you won't understand why everyone is telling white lies to you. People may explain this as "face" related, or "high context communication", but to some people it looks very dishonest.
blumentopf 15y ago
Nouriel Roubini on the investment bubble in China, including these ghost towns: http://www.youtube.com/watch?v=_4yN00qGBbI#t=10m39s http://www.youtube.com/watch?v=_4yN00qGBbI#t=10m39s
zoowar 15y ago
Ghost cities also keep construction workers employed.
- yaix 15y ago
  Why is this downvoted? It is a valid point. Especially in 2008/09 they were rebuilding every second road in the Chinese city I life in, even though the roads where perfectly fine and had just been finished a few years earlier. Same for apartment buildings. They can not just stop building them, because there are literally tens of millions of people getting their income from constructing those buildings.
  - whatwhatwhat 15y ago
    >They can not just stop building them, because there are literally tens of millions of people getting their income from constructing those buildings. Don't you see why this is obviously disastrous? There are so many analogies that can be drawn -- that I'm not even going to try. If you don't see why this is obviously ridiculous then read some stuff about the invisible hand of the market (http://en.wikipedia.org/wiki/Invisible_hand http://en.wikipedia.org/wiki/Invisible_hand). It is only a valid point from the narrow perspective of the workers involved and the employers of those workers selling their services.
    - yaix 15y ago
      Of course I "see" this. But I also see short to medium term considerations by the CN gov't of political stability in the country. Especially at a time of imminent power transition to the next political generation. Its called "political reality". But yeah, I read about the theory you linked to, about 10 years ago, when I studied it.
nkassis 15y ago
Would it not work if they did what Henry Ford was doing. Price them so the workers can buy them? That way the money stays in your pockets while the workers enjoy a better life? Win-Win.
- iwwr 15y ago
  The problem is the expenses in building these things are capitalized (or worse, booked at a greater value), so when they do sell at the much lower value, the developers/banks/government will need to take a loss. So long as the selling can be delayed, the losses can be hidden. If these were just private entities, they'd take the losses and go on, but the government purse is much larger.
  - fleitz 15y ago
    The losses aren't hidden, it's what one would call a long term investment. Because the Chinese government isn't beholden to a two year election cycle they're able to think over a much longer term horizon. Whether this is good/bad in the long term remains to be seen, as a more dynamic business environment might threaten their long term vision. 64 million surplus homes in China could be filled in a heartbeat. China is not America where everyone for the most part already has a pretty decent home. The current US estimates are similar per capita, but the issue is that US doesn't have a massive supply of peasant farmers who would like much better houses in the city. China has started to reach the point where it is fueling the demand for it's own goods similar to what happened to the US in the 20s and continued in the 50s and 60s as a generation moved from the farm to the city. In the US the fuel was lend/lease and marshall aid, for China it's trinkets for Wal-Mart. At 100,000 USD a pop the surplus represents 6.4 trillion dollars, if you assume the units are overvalued similar to USD real estate meaning they have a 3.2 trillion dollar bubble. A 3.2 trillion dollar bubble is similar to the costs of the US bubble plus a war in Iraq and Afganistan. The only difference is the Chinese have peasants who will ostensibly drastically increase their economic output and the fact that building modest housing probably has a better ROI than war.
    - iwwr 15y ago
blantonl 15y ago
Could this type of economic activity by China be characterized as similar to the "New Deal" that the US embarked upon in the 30's? Except in this case China is attempting to stimulate their economy to "keep up" with western society? The sheer level of organization and determination to build all these assets only to have them go uninhabited surely means that there are very conscious decisions being made at very high levels. I suppose capitalism keeps this kind of stuff from happening in the US, since no one is going to put their own money on the line when no one is going to buy. But the flip-side of that argument could be made in that Freddie and Fanny (Government backed entities) were formed to entice the American public to finance and build the American dream home. And we see what happened over the past few years... Those of you that are Economics or Econ/Poly Sci type folks... what is the reasoning for this type of Government behavior? I'm curious as to why China would embark on such a quest.
ignifero 15y ago
Same thing as Dubai: A sprawling ghost-megacity.
prostoalex 15y ago
64 million empty apartments in a country with population of 1.3 billion is sub-5%, hardly reason for panic, and typical of any rental market in the US.
- tokenadult 15y ago
  64000000/1300000000 = 4.9 percent is only a correct estimate of the vacancy rate if you assume that each apartment is to be occupied by only one person, which is surely an untrue assumption about China and any other country I have ever lived in. And see elsewhere in this thread http://news.ycombinator.com/item?id=2746312 http://news.ycombinator.com/item?id=2746312 a more nuanced comment posted hours earlier.
joshwa 15y ago
It's starting to sound like we need an HN China meetup... Where's everyone at? I'm in Kunming, I know maxklein was in Shenzhen for a while.
- westiseast 15y ago
  Fuzhou! Garden city of the south! i would love a China HN meetup. Organise/post it and I'll come.
chopsueyar 15y ago
The US has the empty housing, we just need the high GDP.
webXL 15y ago
As long as these empty buildings don't fall down from neglect, and the money couldn't have been spent more wisely (i.e. these will serve a valuable service some time soon), then I don't see this as a big deal. But more than likely, the glut of resources devoted to housing means neglect in some other place of the economy. The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design -F.A. Hayek, The Fatal Conceit
jackityquack 15y ago
They do have 1,000 million people and counting. 64million is only 6.4% That isn't that high in reality. Give China a break. USA has a rental vacancy rate of 9.7% and an owner vacancy rate of 2.6%. So combined vacancy rate of 12.3%. So yeah, US's is higher. http://www.census.gov/hhes/www/housing/hvs/hvs.html http://www.census.gov/hhes/www/housing/hvs/hvs.html

140 points by zacharyvoase 15y ago

rorrr 15y ago

This was posted a bunch of times http://news.ycombinator.com/item?id=2431869 http://news.ycombinator.com/item?id=2431869 http://news.ycombinator.com/item?id=2386584 http://news.ycombinator.com/item?id=2386584 http://news.ycombinator.com/item?id=2669432 http://news.ycombinator.com/item?id=2669432

trevelyan 15y ago

Nicely done video, but I think it gets the story wrong. The bubble is not illogical to start with. Thanks to currency controls most people have no way to invest outside China. The Shanghai stock market meanwhile has huge problems with adverse selection (bad companies pay to list -- successful companies list in Hong Kong or the United States). There are no property taxes in most of China, so people with money park it in real estate. And developers keep building these assets because they're insulated from loss in any case. If you're connected you can get zero/low cost loans. And local governments are complicit because they make money "selling" the land and don't have alternate income sources. So no-one really cares if someone builds a massive complex and it doesn't sell: the government and developers are covered by the bank, and the bank is covered by the Central Government. This is just a distributional game in which China pays for infrastructure by using public policy to inflate bank earnings and then banks approve questionable local projects. And sometimes these things make a lot of money, so it isn't as if they're taking a hit on every single complex.

yaix 15y ago
This is mostly what happens. Additionally, these new apartment complexes are often build in "new areas" of the bigger cities, to grow the city. China is trying hard to reach a level of urbanization comparable to the west, so they need to "grow their cities" somewhat aggressively. I have lived in two of those newly build complexes myself. First there is not much around, roads, maybe a supermarket and a few stores. The local gov't or the developer offer the shop owners rent-free for a year or two to get them to set up their stores in the new area, because there are almost no people yet. But two or three years later, the apartments are mostly filled (either rented or sold) and the shops are paying rent too, new supermarket have arrived, and suddenly the area has become part of the city center. Same goes for big roads. In the southern part of the town I live in, there is a huge road grid (6 lane roads, etc) already build, but there is only grassland. Come back in five to ten years, and it will be inner city area. Smart to finish the roads before it is crowded.
- j2d2j2d2 15y ago
  Everything you've said assumes these cities are going to explode with 1) enough people to buy the apartments and 2) enough people who can afford them. Could you clarify your view on those two issues?
  - jhancock 15y ago
    Why does the price on failed buildings have to stay high? Why couldn't the government (through a bank, likely) reclaim a bankrupt project, restructure its books and basically "give away" the units? China certainly has its share of problems. Having lots of extra housing for people to eventually move into is far from the top 10. Something related that is a bigger deal is the energy of heating and cooling housing built without 21st century insulation. I think its useful to _not_ compare how the U.S. and EU have handled bailing out its financial institutions. China does not have to bail out its financial institutions in the same way if and when it comes to that. They could simply just let the rich take a haircut and give away a bunch of empty apartments to cool the angry masses.
    - trevelyan 15y ago
      Hey Jon, What is Shanghai like these days? In Beijing there is a ton of vacant commercial real estate, but most of it seems to be owned by organizations with no need to lease (else why not lower prices?). Where developments like SOHO are competing is by selling rather than leasing smaller condo-style units. And while the market for apartments has slowed down, there are still people buying. Fifth ring road near Echo's place is 30,000 RMB per square meter. I wonder more what the actual cost structure is for the complexes cited in these videos. They should be the lowest of all since they're being built on satellite territories. That said, even in a worst case scenario of total default, I wouldn't expect banks to seize the property of people they've been pressured to lend money to. And I wouldn't expect the property to remain "unowned" if it seemed like that would happen. The developers would just sell the assets to a property management company and go nominally bankrupt. Agree about the differences between China, US and EU too, but my guess is that banks are safe, and that as individual markets get overdeveloped local governments will start adopting property taxes to raise revenue. This is NOT going to be popular with people who've already taken out a 30-year mortgage to buy a 60 square meter apartment, but that coupled with price stagnation should curtail people's tendencies to treat real estate as assets for investment instead of places to live, and push prices to whatever is logical given demographic and migration trends. Soft landing?
joe_the_user 15y ago
The bubble is not illogical to start with. Thanks to currency controls most people have no way to invest outside China. Now wait a sec. The bubble is illogical. That it involves individuals making rational choices in a distorted market doesn't exempt it at all. In fact, it is a fine illustration of how distorted, artificial markets produce irrational results despite each person making choices that are logical for them.
- stretchwithme 15y ago
  Yep, its the artificial markets. People have no way of investing outside of Earth either, but that doesn't mean investment bubbles have to happen. Instead of building things people don't need, in a natural market, things are made that people are willing to pay for with their own money. The building boom in China has been directed by government. Banks were told to loan. The government also created the housing boom in the US, through cheap money and loosening lending standards. In both cases, the government created incentives to do stupid things. And the markets responded as markets do to incentives.
  - wisty 15y ago
    I dunno. The government incentives aren't that big, and people do stupid stuff with and without government help. There's no doubt that the government (and neo-liberal mainstream economists) failed to prevent the bubbles. But there's other factors at play. Housing takes a long time to reach an equilibrium. It can take decades for people to move out of a house that's too big for them. The market just doesn't respond quickly, which is a recipe for instability and chaos (just ask anyone who's studied control theory, or chaos theory). There might be a few players who are smart enough to see this, but the average real estate investor isn't a Wall Street quant, or even a trader. They are a 20-or-30-something year old, with no financial nous at all. They see 10 years of solid growth (due to demographic changes, income growth, and government intervention), jump on the wagon, and that creates a little more impetus. Do you really think that the government is entirely pro-cyclical? That they choke supply, and give out free money while prices are rising; and increase supply and curtail loans while prices are falling? I doubt it. And if the Chinese government is to blame, why is it so damn regional? The Shenzhen bubble is nothing like the Beijing one, which is nothing like the Shanghai one, which is nothing like the Inner Mongolia one. Some of that is local government actions, but I dont't think it is in most places.
westiseast 15y ago
I'm pretty sure that fundamental economics are the same the world around - if there's no end consumer for your product, then there's a loss somewhere. It doesn't matter who covers the loss, but there's still a loss and it's not correct to say that no-one cares. The biggest fallacy I've heard recently about this housing situation is the oft' repeated "things are different in China" - you can't argue with basic maths like this. Surely the 2008 economic crisis was triggered by a similar situation, with western banks and investors ignoring fundamental economic equations?
westiseast 15y ago
oh, and another thing - people have no way to invest outside of China? What? Any quick google search will tell you about the hundreds of millions of government money being embezzled by officials outside of China, not to mention rich Chinese citizens legitimately taking American citizenship and investing their money overseas...

martythemaniak 15y ago

Give the empty apartments to poor folk. You solve the high income inequality and property bubble at the same time ;)

wisty 15y ago
Whenever that happens in China, the "poor" folk who actually get the free apartments aren't always poor. Welfare fraud is not unique to the US.
iwwr 15y ago
Simply maintaining these apartments may be too much even for the average city worker.

gopi 15y ago

>> There are no property taxes in most of China, so people with money park it in real estate. Exactly the case in India. Most people there park money in real estate. Also in the suburbs the official land value (determined by govt) is far less than the real market value. So investing in that kind of land is way to park black money (or corruption money). The usual real estate factors like rent-to-own don't apply, Infact the prices in the suburbs of even a 3rd tier small city like Coimbatore is more than that in a major US metro!

yaix 15y ago
>> There are no property taxes in most of China, so people with money park it in real estate. There are now in Shanghai, Beijing and a few other major cities. That's quite new and started just this year.
signa11 15y ago
>> There are no property taxes in most of China, so people with money park it in real estate. >Exactly the case in India. Most people there park money in real estate. not true. there most definitely are property taxes in india. the reason why folks park money in real-estate is that it seems to an appreciating asset not being subjected to harsh vagaries of the volatile stock market...

Game_Ender 15y ago

An article in SF Chronicle provides some good perspective on these vacancy rates in China to backup this video: http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2011/07/07/investopedia54293.DTL http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2011/07/07/... Even in the huge industrial cities of Shanghai and Beijing the vacancy rates of approximately 50% and 35%. The peak for the US during the recession was 18.5% in Michigan.

vorg 15y ago

Can't view the video from here in China, but... I've noticed lately developers/local govt tearing down buildings after evicting tenants, then canning the new building project ("running out of money", maybe), instead turning the land into a carpark. This creates more demand for unsold apartments nearby, (as well as giving vehicles somewhere other than footpaths to park on :).

wisty 15y ago
Or the development was found unsafe (after a number have already fallen down), or they realized that the permissions were not done correctly (or at all).

whatwhatwhat 15y ago

How many apartments are vacant in the US, just as a comparison, does anyone know? That would make the number much more meaningful. Also, are these apartments dirt cheap and do they speak english in these areas at all? Maybe they could be a haven for startups, which are somewhat less bound by geography, if they were extremely cheap. I might just be dreaming though.

joss82 15y ago
You may be dreaming, but you're not the only one. What would be the hurdles to get a startup running in China? The Great Firewall? It's a big country so it's always possible to find a place that fits your personal taste. For example Sanya is a tropical island. Not much infrastructure there yet though.
- yaix 15y ago
  Great Firewall? Use a VPN, easy. (I'm doing it for many years). Sanya is not an island, its a city on the island of Hainan. Infrastructure in China is very good, especially train lines.
- wisty 15y ago
  Hurdles? 1) Language, especially when getting stuff like visas, work permits, incorporation, etc. You can stay on non-work (or business) visas, but it's not terribly legal. As for the English standard, imagine you have a country with 1 point something billion people, and speaking English was discouraged until about 20 years ago (except if you were in intelligence). How do you teach it? Only young people tend to be fluent. Most English teachers have never left the country, or had much one-on-one interaction with people who can speak good English. Students are great at certain elements of formal written grammar, if it's in an exam setting. Vocabulary can be OK. But fluency can be a problem. 2) Red tape. It's non-existant for the old woman selling wonton soup by the side of the street (as long as she can run faster than the local city management, or can afford to give them lots of free soup), but not likely to be fun for foreign businesses. 3) Talent. I'm sure it's there, but you won't know how to find it. You can't tell if people are bright, unless you can communicated easily. Also,expect programmers with great geometry, good algorithms, and no idea how to work in a team; kinda like most countries, really. 4) Honesty. Chinese believe that "actions speak louder than words". If you don't understand this, and you won't, you won't understand why everyone is telling white lies to you. People may explain this as "face" related, or "high context communication", but to some people it looks very dishonest.

blumentopf 15y ago

Nouriel Roubini on the investment bubble in China, including these ghost towns: http://www.youtube.com/watch?v=_4yN00qGBbI#t=10m39s http://www.youtube.com/watch?v=_4yN00qGBbI#t=10m39s

zoowar 15y ago

Ghost cities also keep construction workers employed.

yaix 15y ago
Why is this downvoted? It is a valid point. Especially in 2008/09 they were rebuilding every second road in the Chinese city I life in, even though the roads where perfectly fine and had just been finished a few years earlier. Same for apartment buildings. They can not just stop building them, because there are literally tens of millions of people getting their income from constructing those buildings.
- whatwhatwhat 15y ago
  >They can not just stop building them, because there are literally tens of millions of people getting their income from constructing those buildings. Don't you see why this is obviously disastrous? There are so many analogies that can be drawn -- that I'm not even going to try. If you don't see why this is obviously ridiculous then read some stuff about the invisible hand of the market (http://en.wikipedia.org/wiki/Invisible_hand http://en.wikipedia.org/wiki/Invisible_hand). It is only a valid point from the narrow perspective of the workers involved and the employers of those workers selling their services.
  - yaix 15y ago
    Of course I "see" this. But I also see short to medium term considerations by the CN gov't of political stability in the country. Especially at a time of imminent power transition to the next political generation. Its called "political reality". But yeah, I read about the theory you linked to, about 10 years ago, when I studied it.

nkassis 15y ago

Would it not work if they did what Henry Ford was doing. Price them so the workers can buy them? That way the money stays in your pockets while the workers enjoy a better life? Win-Win.

iwwr 15y ago
The problem is the expenses in building these things are capitalized (or worse, booked at a greater value), so when they do sell at the much lower value, the developers/banks/government will need to take a loss. So long as the selling can be delayed, the losses can be hidden. If these were just private entities, they'd take the losses and go on, but the government purse is much larger.
- fleitz 15y ago
  The losses aren't hidden, it's what one would call a long term investment. Because the Chinese government isn't beholden to a two year election cycle they're able to think over a much longer term horizon. Whether this is good/bad in the long term remains to be seen, as a more dynamic business environment might threaten their long term vision. 64 million surplus homes in China could be filled in a heartbeat. China is not America where everyone for the most part already has a pretty decent home. The current US estimates are similar per capita, but the issue is that US doesn't have a massive supply of peasant farmers who would like much better houses in the city. China has started to reach the point where it is fueling the demand for it's own goods similar to what happened to the US in the 20s and continued in the 50s and 60s as a generation moved from the farm to the city. In the US the fuel was lend/lease and marshall aid, for China it's trinkets for Wal-Mart. At 100,000 USD a pop the surplus represents 6.4 trillion dollars, if you assume the units are overvalued similar to USD real estate meaning they have a 3.2 trillion dollar bubble. A 3.2 trillion dollar bubble is similar to the costs of the US bubble plus a war in Iraq and Afganistan. The only difference is the Chinese have peasants who will ostensibly drastically increase their economic output and the fact that building modest housing probably has a better ROI than war.
  - iwwr 15y ago

blantonl 15y ago

Could this type of economic activity by China be characterized as similar to the "New Deal" that the US embarked upon in the 30's? Except in this case China is attempting to stimulate their economy to "keep up" with western society? The sheer level of organization and determination to build all these assets only to have them go uninhabited surely means that there are very conscious decisions being made at very high levels. I suppose capitalism keeps this kind of stuff from happening in the US, since no one is going to put their own money on the line when no one is going to buy. But the flip-side of that argument could be made in that Freddie and Fanny (Government backed entities) were formed to entice the American public to finance and build the American dream home. And we see what happened over the past few years... Those of you that are Economics or Econ/Poly Sci type folks... what is the reasoning for this type of Government behavior? I'm curious as to why China would embark on such a quest.

ignifero 15y ago

Same thing as Dubai: A sprawling ghost-megacity.

prostoalex 15y ago

64 million empty apartments in a country with population of 1.3 billion is sub-5%, hardly reason for panic, and typical of any rental market in the US.

tokenadult 15y ago
64000000/1300000000 = 4.9 percent is only a correct estimate of the vacancy rate if you assume that each apartment is to be occupied by only one person, which is surely an untrue assumption about China and any other country I have ever lived in. And see elsewhere in this thread http://news.ycombinator.com/item?id=2746312 http://news.ycombinator.com/item?id=2746312 a more nuanced comment posted hours earlier.

joshwa 15y ago

It's starting to sound like we need an HN China meetup... Where's everyone at? I'm in Kunming, I know maxklein was in Shenzhen for a while.

westiseast 15y ago
Fuzhou! Garden city of the south! i would love a China HN meetup. Organise/post it and I'll come.

chopsueyar 15y ago

The US has the empty housing, we just need the high GDP.

webXL 15y ago

As long as these empty buildings don't fall down from neglect, and the money couldn't have been spent more wisely (i.e. these will serve a valuable service some time soon), then I don't see this as a big deal. But more than likely, the glut of resources devoted to housing means neglect in some other place of the economy. The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design -F.A. Hayek, The Fatal Conceit

jackityquack 15y ago

They do have 1,000 million people and counting. 64million is only 6.4% That isn't that high in reality. Give China a break. USA has a rental vacancy rate of 9.7% and an owner vacancy rate of 2.6%. So combined vacancy rate of 12.3%. So yeah, US's is higher. http://www.census.gov/hhes/www/housing/hvs/hvs.html http://www.census.gov/hhes/www/housing/hvs/hvs.html