China’s Ghost Towns

Chongqing is China’s biggest township with a population of 31 million – larger than either Delhi or Mumbai. It is a sprawling municipality with stunning technology, from bullet trains to solar-powered towers.

But Chongqing hides a darker truth about China’s rollercoaster real estate development over the past two decades that has created several “ghost towns”. Empty buildings and empty cities are an indictment of Beijing’s policies that have led to huge over-supply even as a slowing economy squeezes demand.

Real estate prices across China have crashed since 2021. The Shanghai Composite stock market index is down 12 per cent over the past year and down 22 per cent since 2021. More than 70 per cent of the personal wealth of average Chinese citizens is tied up in real estate or stocks. The fall in the value of both has forced the Chinese to cut down on consumption. With economic growth in 2024-25 likely to slow to 4.6 per cent, according to the IMF, demand is falling behind supply across several domestic sectors.

Apart from empty buildings with no buyers, a deflationary cycle has set into the Chinese economy. Inflation is near zero. Added to its economic challenges are Beijing’s geopolitical tensions with the West.

So is the Chinese miracle over? Not by a long shot. China still has enormous strengths. It is the largest market for electric vehicles in the world. China accounts for 60 per cent of EV sales globally. Its home-grown automaker BYD overtook Elon Musk’s Tesla with sales deliveries of 5,26,409 EVs in the October-December 2023 quarter compared to 4,84,507 sales deliveries of Tesla EVs.

BYD is building assembly lines for EVs across Europe (Hungary), South America (Brazil) and Asia (Thailand). BYD officially stands for “Build Your Dreams” and has been operating in India for 16 years.

Despite the US-led ban on sales of advance semiconductor technology to China, Beijing has established its own chip-making ecosystem. It leads the world in quantum computing and artificial intelligence. It is the world’s largest steel producer. India is the second largest producer of steel but China’s annual output of one billion metric tonnes of steel dwarfs India’s annual output of 125 million metric tonnes. 

Much of China’s steel production has gone into the housing sector, contributing to over-supply. According to estimates published in 2022, roughly 65 million properties in China were vacant. In 2024, with the economy slowing and the real estate sector sinking deeper into crisis, that number has climbed.

Rupendra Brahambhatta writing in Interesting Engineering, a respected technology website, noted: “A recent report reveals that about 20 per cent of the total urban housing properties in China — around 65 million properties — are vacant. This 20 per cent includes large sections of cities like Tianducheng, Thames Town, Binhai, and many others which span across hundreds of square kilometres but have far more empty buildings than occupied ones. Such ‘ghost cities’ in China have well-connected roads, infrastructure, skyscrapers, and a variety of public spaces, but are vastly underpopulated and have vast areas that are completely without residents. 

“Real estate was once a sector where investment was considered safe and profitable in China. Even the Chinese government encouraged investment in property because, for decades, the real estate market, and its more or less continuously rising prices, has been a key driver in increasing the country’s wealth, as well as household income. The Communist government accumulates sales revenues worth billions of dollars from land sales and the earnings of the property market, and the reason behind this real estate-driven economy lies in the country’s constitution. According to the Chinese constitution, all the land in China is owned by the state, so when developers want to build on a piece of land, they have to lease it from the government, often by participating in local land auctions.”

Perception vs Reality

The Chinese government argues that what the world sees as ghost cities are simply unoccupied buildings that have been sold but whose owners are using them as an investment and live elsewhere. This comes as close as it could to an admission that China over the years over-built its housing infrastructure. With the real estate and its allied industries accounting for nearly 30 per cent of China’s GDP, this was a way of turbocharging economic growth. The strategy has misfired. 

In a perceptive analysis of the causes of China’s real estate bubble, UrbanNext Lexicon pointed out: “Ghost Cities highlight Chinese practices of overdevelopment and dependence on housing as an investment strategy, making the areas where they exist more susceptible to the effects of a widespread economic slowdown if China were to have one. Little data exists which establishes the location and extent of these vacant areas in China. MIT’s Civic Data Design Lab developed a model using data scraped from social media to create one of the first maps that identifies the locations of Chinese Ghost Cities.”

How long will it take China to overcome its problem of real estate over-supply? Oxford Economics lead economist Louise Loo believes it could take several years for demand to catch up with over-supply in the absence of a meaningful pickup in demand.

The negative impact of China’s property crisis is spreading across the larger economy. Moody’s estimates that China’s GDP growth rate will fall to four per cent in both 2024 and 2025 and further dip to 3.8 per cent in 2026 right through to 2030.

And yet, most analysts don’t believe the property bubble will harm the Chinese economy in the same way Japan’s property bubble burst in 1991, leading to three decades of stagflation. While China too, like Japan, is ageing demographically, its size and authoritarian government that can intervene directly in troubled enterprises provides a shield against an economic Armageddon.