Welcome to the debate. Picture this. You're driving
through the interior of China, hours from the
nearest coast. You go through miles and miles
of dusty scrubland, desert really, nothingness.
And then... All of a sudden, it just rises out
of the sand. A skyline the size of Manhattan.
You see these glass skyscrapers, six -lane boulevards,
massive neoclassical government buildings, an
opera house that looks like a spaceship. But
when you roll down the window, you hear the strangest
thing of all. Silence. No cars. No pedestrians.
Just wind whistling through empty elevator shafts.
This is the phenomenon of the Chinese ghost city.
It is a haunting image. I won't deny that. But,
you know, if you take that same drone footage
and just fast forward 10 years, those empty boulevards
are often gridlocked with traffic. I'm here to
argue that what looks like a total economic disaster
to the Western eye is actually a calculated long
-term urbanization strategy that we simply don't
have the patience to understand. And that is
the gamble we are analyzing today, isn't it?
Is this model of building vast cities before
a single resident moves in a catastrophic economic
bubble fueled by debt and delusion? Or is it
a masterclass in central planning that is, well,
playing a game measured in decades rather than
fiscal quarters? I am the advocate, and I'll
be making the case that the Chinese real estate
market is the largest bubble in history. a distortion
that has wasted colossal resources and trapped
the wealth of a nation in concrete boxes. And
I am the dissenter. And I'll be arguing that
Ghost City is a lazy label for city in progress.
I believe that despite the recent crises, this
strategy was maybe the only way to move hundreds
of millions of people into the modern world,
and that the emptiness is a feature, not a bug,
of their development timeline. Let's start with
the scale of this, because I really don't think
people realize just how much concrete we're talking
about. Between 2011 and 2013, China used more
cement than the United States used in the entire
20th century. Just let that sink in for a second.
Two years versus 100 years. This wasn't just
construction. It was a mania. Between 2005 and
2009, housing prices tripled. By 2010, we had
estimates of, what, 64 million empty apartments?
That is the entire population of France, waiting
for keys that no one owned. The consumption numbers
are staggering, absolutely. But you have to look
at the demographic tidal wave that required that
cement. In 1978, China's urbanization rate was
roughly 18%. It was an agrarian society. By 2020,
that number hit 64%. And the government has explicitly
stated they want that number to reach 75 % by
2035. I mean, we are talking about relocating
a population larger than the United States from
farms to high -rises. You just can't do that
incrementally. You can't build one condo tower,
wait for it to fill, and then build the next
one. You have to build the infrastructure at
scale. But are they building for people or are
they building for GDP figures? Because when you
look at the incentives, it gets, well, it gets
ugly. Local governments in China don't have the
same tax base as Western cities. For years, they
relied on land sales for up to 50 % of their
revenue. So to keep the lights on and to get
promoted within the party, local officials had
to show growth. And how do you show growth? You
bulldoze land, sell it to a developer, and build
a district. Whether anyone lives there is a problem
for the next guy. This created a huge disconnect.
where price -to -income ratios in Beijing reached
27 to 1. For context, in most healthy economies,
that ratio is maybe 4 to 1 or 5 to 1. Regular
people were priced out of the very cities being
built for them. High prices are a burden, I agree.
But let's stick to the ghost city narrative for
a moment, because this is where the Western analysis
usually fails. The term implies these places
are dead, abandoned. But the Chinese model of
development is supply -led. They build the shell
of the city to near completion before introducing
the population. It's the exact opposite of how
London or New York grew, which was, you know,
organic and messy over centuries. Supply -led
is a polite way of saying field of dreams economics.
Build it and they will come. But let's look at
where they actually built. Take Ordos, Kangbasi.
This is the poster child. In 2009, Melissa Chan
from Al Jazeera went there. She filmed these
pristine streets, museums, libraries, all completely
empty. It was built in the middle of Inner Mongolia,
fueled by a coal boom. It was, I mean, it was
widely mocked as a failure, a monument to hubris.
Right. And that report by Melissa Chan defined
the narrative for a decade. But it was a snapshot
of a baby city. In 2009, Kang Bishi was five
years old. You can't judge a metropolis on a
five -year timeline. If you go back to the data
from around 2017 or 2018, the population had
swelled to over 150 ,000 people. There were nearly
5 ,000 businesses operating. Is it Tokyo? No.
But it is a functioning city with schools and
traffic jams. The ghosts were just people who
hadn't arrived yet. Okay, but at what cost did
they arrive? And look at the absurdities involved
in getting there. You have places like Tan Du
Chang, the quote -unquote fake Paris near Hangzhou.
They built a replica Eiffel Tower. They built
these Haussmann -style boulevards. For years,
it was virtually empty. They even hired foreigners
to wander around during property fairs just to
make it look international. It was an erotic
fantasy of modernization, not a city. It was
a spectacle designed to sell units to speculators,
not to house workers. Tianducheng is an extreme
example of the architectural mimicry, sure, but
even Tianducheng filled up. By 2017, it had 30
,000 residents. Why? Because the spillover from
Hangzhou eventually reached it. But the ultimate
counter -argument to your waste theory has to
be Pudong. In the early 90s, Pudong, that iconic
skyline of Shanghai across the river, was mocked.
Economists called it a statist fantasy. a Potemkin
village. They said no one would move their offices
there. And today, it is one of the most significant
financial centers on the planet. If you had bet
against Pudong in 1995 because it was empty,
you would have been very, very wrong. But Pudong
is attached to Shanghai, the economic engine
of the country. It's prime real estate that is
very different from building a massive new district
in a Tier 3 or Tier 4 city where the economic
fundamentals just aren't there. The mechanism
is the same, though. And this is the power the
Chinese state has that Western developers just
don't. They can force occupancy. Look at the
Changgong District in Kunming, another ghost
city in 2012. So what did the government do?
They didn't just lower rents. They moved the
leading universities there. They moved the municipal
government headquarters there. They built a subway
line connecting it to the old city center. They
have levers to move human capital that market
economies simply do not possess. Forcing occupancy
is a terrifying concept if you care about individual
choice. But let's pivot to the people actually
buying these units. Because walking through these
cities, the weirdest thing isn't just that they're
empty. It's that they're sold. Almost all those
dark windows belong to someone. This brings us
to the investment culture. In the West, you buy
a house to live in or maybe you rent it out.
In China, there is this phenomenon where people
buy apartments and intentionally leave them empty.
We call it low housing utilization efficiency.
It dropped from 84 % in 2010 to 78 % in 2020.
Why buy an apartment and just let it gather dust?
Because you're looking at it through the lens
of a Western investor who has options. If you're
a middle class person in the U .S., you put your
money in the S &P 500 or bonds or 401k. In China,
the stock market is notoriously volatile. It's
often compared to a casino. The bond market is
not really accessible to the average person.
And capital controls mean you can't easily move
your money out of the country. So where do you
put your savings to protect them from inflation?
You put them in concrete. Exactly. You buy commodity
housing. And this is crucial. You have to distinguish
between the tier cities. The gray income, money
that isn't reported to the taxman, which some
economists think is 10 % of the entire GDP, floods
into the market. But it doesn't go everywhere.
It goes to tier one cities like Beijing, Shanghai,
Shenzhen. These are the New Yorks and Londons
of China. Investors view real estate there as
a safe deposit box in the sky. It doesn't matter
if no one lives there. The point is that it holds
value. But that logic only works if the value
keeps going up. It's the definition of a bubble
psychology. And it's driven by this intense cultural
pressure. We have to talk about the mother -in
-law economy. In China, for a young man to be
considered eligible for marriage, he generally
needs to own a home. It's not a preference. It's
basically a requirement. So you have parents
and grandparents pooling three generations of
savings to buy a potentially overpriced apartment
just so the son can get a date. It's heartbreaking,
honestly, because it traps entire families in
this one asset class. It is immense pressure,
yes. But looking at it as purely speculative
misses the functional utility. That apartment
bought for the son is also a hedge for the parent's
retirement. The Chinese household savings rate
is incredibly high. They aren't buying these
homes on subprime mortgages with zero down payment
like the U .S. in 2008. They are buying with
massive down payments, often 30 to 50 percent
cash. That makes the market more resilient than
you might think. And remember the forecast? 160
million new urbanites between 2011 and 2020.
The fundamental demand for shelter was real,
even if the timing of the purchase was, you know,
speculative. You say resilient. But I look at
the post 2020 reality and I see a crash, a massive
one. We cannot talk about this without discussing
the three red lines. Right. The policy shift.
For those who don't know, in August 2020, Beijing
basically decided the party was over. They issued
the three red lines. These weren't suggestions.
They were strict financial ratios. Basically,
if a developer wanted to borrow more money from
banks, they had to keep their debt to cash and
liability to asset ratios below certain limits.
They turned off the tap. And what happened? The
biggest developers in the world, Evergrande,
Country Guarded In, Shimao, they collapsed. They
defaulted. It turned out they were running something
like a Ponzi scheme, using money from new sales
to finish old projects. When the liquidity stopped,
construction stopped. I wouldn't call it a Ponzi
scheme. I'd call it an over -leveraged growth
model. But here is where we disagree on the nature
of the crash. You see the defaults of Evergrande
as the system failing. I see it as the system
correcting. The government engineered this crisis.
They saw the bubble you're talking about and
they decided to pop it on their own terms. The
slogan became houses are for living, not for
speculation. It was an induced coma to prevent
a total death of the economy later on. An induced
coma? Tell that to the millions of people who
prepaid for apartments that are now standing
as unfinished concrete skeletons. We saw mortgage
boycotts spreading across the country. People
refusing to pay the bank for homes that didn't
have walls yet. That's a breakdown of the social
contract. And the economic fallout is the negative
wealth effect. Explain that for the listeners,
because it's the key to the current slowdown.
While since 70 % of Chinese household wealth
is tied up in property, compare that to maybe
30 % in the U .S. When property values dip, people
feel poor immediately, even if they don't sell.
They stop going out to dinner. They stop buying
cars. They stop taking trips. The entire economy
freezes because the nest egg is cracking. It's
a deflationary spiral that is incredibly hard
to pull out of. It is painful. There was no doubt
about it. The deflation is real. But look at
the response. The government isn't letting it
turn into a Lehman Brothers moment where the
banks fail and the ETM stop working. They are
managing the dissent. In 2024, they announced
4 trillion yuan in financing for the whitelist
projects, basically picking the healthy developments
and ensuring they get finished. They are prioritizing
the delivery of homes over the profits of the
developers. The developers can go bankrupt, but
the buildings must be finished. Okay, but are
they finishing buildings or are they finishing
future slums? There's a quote from the architectural
critic Austin Williams that has always stuck
with me regarding this era. He said the model
was building shit, making a profit, and moving
on. The quality of construction in these boom
years was notoriously poor. We've seen reports
of tough food drag projects, concrete that just
crumbles in your hand. So even if they finish
these ghost cities, do we really think they're
going to last 50 years? Are they going to be
demolished in 20? That is a valid concern for
a specific project, certainly. Quality control
was sacrificed for speed. But I want to zoom
out to the 30 ,000 foot view again. We are debating
the efficiency of the urbanization, not the necessity
of it. If China had not built ahead of demand,
if they had waited for the people to arrive before
laying the bricks, you would have the urbanization
nightmare we see in India or Brazil. Massive,
sprawling shanty towns, favelas without sewage
or power, gridlock that paralyzes the economy.
China chose a different risk. They chose to waste
capital to ensure capacity. I think that's a
false dichotomy. You can plan for urbanization
without building 65 million empty units and inflating
a bubble that threatens the global economy. You
can build infrastructure without distorting your
entire GDP so that it relies on selling land
to yourself. The waste we're talking about isn't
just a few empty buildings. It represents trillions
of dollars of labor and resources that could
have gone into healthcare, into high -tech manufacturing,
into education. Instead, it sits in the desert,
slowly weathering. But is it wasted if it eventually
gets used? That's the core of our disagreement.
You look at an empty city in 2015 and see waste.
I look at Zhenjingdong New Area, which was called
a ghost city in 2012 and now has over a million
residents, and I see a long -term asset. The
urbanization ceiling hasn't been hit. They're
still laming for 75%. That means hundreds of
millions more people are coming. Those empty
apartments in Tier 2 and Tier 3 cities, they're
the inventory for the next decade. The ghost
city paradox is simply that the hardware was
installed before the software was ready to run.
Or the hardware is obsolete. The population of
China is shrinking now. That's the demographic
twist we haven't touched on. The population declined
in 2022 and 2023. If there are fewer people,
who is going to fill these new cities? We might
have reached the peak of the curve and now we're
just left with a surplus. Demographics shift
slowly. The urbanization rate, the move from
rural to urban, still has room to grow even if
the total population shrinks. Rural residents
moving to cities will still need homes. But I
will concede this. The era of build anything,
anywhere is over. The government knows this.
That's why the three red lines happened. They
are transitioning from quality to quality. But
I still maintain that looking back at the last
20 years, the strategy of pre -building infrastructure
was on balance as success for China's development.
And I maintain that it was a gamble that paid
off in some places. but left a toxic legacy of
debt and bad assets that will drag down their
economy for a generation. When you treat housing
as a speculative financial product rather than
a place to sleep, you distort society. You create
a world where young people lie flat because they
can't afford to participate, and where old people
lose their savings because a developer overleveraged.
It is the classic tension between the plan and
the market, the efficiency of capital today versus
the capacity for tomorrow. I think we can agree
that the visual of the ghost city, those silent
towers in the mist, is the perfect symbol for
modern China. Massive ambition, incredible speed,
and a terrifying uncertainty about what happens
next. Indeed. And whether those towers eventually
fill with life or crumble into the sand will
likely determine the economic narrative of the
next decade. That brings us to the end of this
edition of The Debate. We hope you look at those
skyline photos a little differently now. Thanks
for listening. Goodbye.