WEBVTT 00:00:00.000 --> 00:00:03.140 Welcome to the debate. Picture this. You're driving 00:00:03.140 --> 00:00:06.259 through the interior of China, hours from the 00:00:06.259 --> 00:00:08.960 nearest coast. You go through miles and miles 00:00:08.960 --> 00:00:12.740 of dusty scrubland, desert really, nothingness. 00:00:12.779 --> 00:00:15.869 And then... All of a sudden, it just rises out 00:00:15.869 --> 00:00:18.730 of the sand. A skyline the size of Manhattan. 00:00:19.089 --> 00:00:22.789 You see these glass skyscrapers, six -lane boulevards, 00:00:22.850 --> 00:00:26.429 massive neoclassical government buildings, an 00:00:26.429 --> 00:00:29.269 opera house that looks like a spaceship. But 00:00:29.269 --> 00:00:31.789 when you roll down the window, you hear the strangest 00:00:31.789 --> 00:00:35.289 thing of all. Silence. No cars. No pedestrians. 00:00:35.649 --> 00:00:39.509 Just wind whistling through empty elevator shafts. 00:00:39.590 --> 00:00:43.390 This is the phenomenon of the Chinese ghost city. 00:00:43.850 --> 00:00:46.490 It is a haunting image. I won't deny that. But, 00:00:46.590 --> 00:00:48.829 you know, if you take that same drone footage 00:00:48.829 --> 00:00:52.609 and just fast forward 10 years, those empty boulevards 00:00:52.609 --> 00:00:55.850 are often gridlocked with traffic. I'm here to 00:00:55.850 --> 00:00:58.469 argue that what looks like a total economic disaster 00:00:58.469 --> 00:01:02.549 to the Western eye is actually a calculated long 00:01:02.549 --> 00:01:05.829 -term urbanization strategy that we simply don't 00:01:05.829 --> 00:01:08.489 have the patience to understand. And that is 00:01:08.489 --> 00:01:10.670 the gamble we are analyzing today, isn't it? 00:01:11.049 --> 00:01:14.769 Is this model of building vast cities before 00:01:14.769 --> 00:01:18.730 a single resident moves in a catastrophic economic 00:01:18.730 --> 00:01:23.049 bubble fueled by debt and delusion? Or is it 00:01:23.049 --> 00:01:26.250 a masterclass in central planning that is, well, 00:01:26.310 --> 00:01:28.829 playing a game measured in decades rather than 00:01:28.829 --> 00:01:32.250 fiscal quarters? I am the advocate, and I'll 00:01:32.250 --> 00:01:34.250 be making the case that the Chinese real estate 00:01:34.250 --> 00:01:37.200 market is the largest bubble in history. a distortion 00:01:37.200 --> 00:01:39.859 that has wasted colossal resources and trapped 00:01:39.859 --> 00:01:42.659 the wealth of a nation in concrete boxes. And 00:01:42.659 --> 00:01:45.599 I am the dissenter. And I'll be arguing that 00:01:45.599 --> 00:01:48.959 Ghost City is a lazy label for city in progress. 00:01:49.359 --> 00:01:52.400 I believe that despite the recent crises, this 00:01:52.400 --> 00:01:55.019 strategy was maybe the only way to move hundreds 00:01:55.019 --> 00:01:57.379 of millions of people into the modern world, 00:01:57.480 --> 00:02:00.420 and that the emptiness is a feature, not a bug, 00:02:00.519 --> 00:02:03.280 of their development timeline. Let's start with 00:02:03.280 --> 00:02:05.739 the scale of this, because I really don't think 00:02:05.739 --> 00:02:07.900 people realize just how much concrete we're talking 00:02:07.900 --> 00:02:12.500 about. Between 2011 and 2013, China used more 00:02:12.500 --> 00:02:15.060 cement than the United States used in the entire 00:02:15.060 --> 00:02:19.000 20th century. Just let that sink in for a second. 00:02:19.120 --> 00:02:22.939 Two years versus 100 years. This wasn't just 00:02:22.939 --> 00:02:26.360 construction. It was a mania. Between 2005 and 00:02:26.360 --> 00:02:29.969 2009, housing prices tripled. By 2010, we had 00:02:29.969 --> 00:02:32.870 estimates of, what, 64 million empty apartments? 00:02:33.210 --> 00:02:36.270 That is the entire population of France, waiting 00:02:36.270 --> 00:02:38.949 for keys that no one owned. The consumption numbers 00:02:38.949 --> 00:02:41.949 are staggering, absolutely. But you have to look 00:02:41.949 --> 00:02:45.189 at the demographic tidal wave that required that 00:02:45.189 --> 00:02:48.969 cement. In 1978, China's urbanization rate was 00:02:48.969 --> 00:02:52.759 roughly 18%. It was an agrarian society. By 2020, 00:02:53.000 --> 00:02:56.539 that number hit 64%. And the government has explicitly 00:02:56.539 --> 00:02:59.379 stated they want that number to reach 75 % by 00:02:59.379 --> 00:03:02.419 2035. I mean, we are talking about relocating 00:03:02.419 --> 00:03:04.419 a population larger than the United States from 00:03:04.419 --> 00:03:06.719 farms to high -rises. You just can't do that 00:03:06.719 --> 00:03:09.020 incrementally. You can't build one condo tower, 00:03:09.159 --> 00:03:11.000 wait for it to fill, and then build the next 00:03:11.000 --> 00:03:13.000 one. You have to build the infrastructure at 00:03:13.000 --> 00:03:15.939 scale. But are they building for people or are 00:03:15.939 --> 00:03:19.020 they building for GDP figures? Because when you 00:03:19.020 --> 00:03:21.819 look at the incentives, it gets, well, it gets 00:03:21.819 --> 00:03:24.680 ugly. Local governments in China don't have the 00:03:24.680 --> 00:03:28.460 same tax base as Western cities. For years, they 00:03:28.460 --> 00:03:31.180 relied on land sales for up to 50 % of their 00:03:31.180 --> 00:03:34.000 revenue. So to keep the lights on and to get 00:03:34.000 --> 00:03:36.960 promoted within the party, local officials had 00:03:36.960 --> 00:03:39.659 to show growth. And how do you show growth? You 00:03:39.659 --> 00:03:42.620 bulldoze land, sell it to a developer, and build 00:03:42.620 --> 00:03:46.039 a district. Whether anyone lives there is a problem 00:03:46.039 --> 00:03:49.379 for the next guy. This created a huge disconnect. 00:03:49.919 --> 00:03:52.539 where price -to -income ratios in Beijing reached 00:03:52.539 --> 00:03:56.879 27 to 1. For context, in most healthy economies, 00:03:57.080 --> 00:04:00.580 that ratio is maybe 4 to 1 or 5 to 1. Regular 00:04:00.580 --> 00:04:02.800 people were priced out of the very cities being 00:04:02.800 --> 00:04:05.319 built for them. High prices are a burden, I agree. 00:04:05.599 --> 00:04:07.960 But let's stick to the ghost city narrative for 00:04:07.960 --> 00:04:09.860 a moment, because this is where the Western analysis 00:04:09.860 --> 00:04:12.680 usually fails. The term implies these places 00:04:12.680 --> 00:04:15.979 are dead, abandoned. But the Chinese model of 00:04:15.979 --> 00:04:18.819 development is supply -led. They build the shell 00:04:18.819 --> 00:04:21.160 of the city to near completion before introducing 00:04:21.160 --> 00:04:23.920 the population. It's the exact opposite of how 00:04:23.920 --> 00:04:26.019 London or New York grew, which was, you know, 00:04:26.019 --> 00:04:29.300 organic and messy over centuries. Supply -led 00:04:29.300 --> 00:04:32.399 is a polite way of saying field of dreams economics. 00:04:32.899 --> 00:04:36.420 Build it and they will come. But let's look at 00:04:36.420 --> 00:04:39.839 where they actually built. Take Ordos, Kangbasi. 00:04:40.000 --> 00:04:43.720 This is the poster child. In 2009, Melissa Chan 00:04:43.720 --> 00:04:46.399 from Al Jazeera went there. She filmed these 00:04:46.399 --> 00:04:50.459 pristine streets, museums, libraries, all completely 00:04:50.459 --> 00:04:53.560 empty. It was built in the middle of Inner Mongolia, 00:04:53.740 --> 00:04:57.360 fueled by a coal boom. It was, I mean, it was 00:04:57.360 --> 00:05:00.699 widely mocked as a failure, a monument to hubris. 00:05:00.920 --> 00:05:04.160 Right. And that report by Melissa Chan defined 00:05:04.160 --> 00:05:07.379 the narrative for a decade. But it was a snapshot 00:05:07.379 --> 00:05:11.220 of a baby city. In 2009, Kang Bishi was five 00:05:11.220 --> 00:05:13.899 years old. You can't judge a metropolis on a 00:05:13.899 --> 00:05:16.759 five -year timeline. If you go back to the data 00:05:16.759 --> 00:05:20.699 from around 2017 or 2018, the population had 00:05:20.699 --> 00:05:24.519 swelled to over 150 ,000 people. There were nearly 00:05:24.519 --> 00:05:28.540 5 ,000 businesses operating. Is it Tokyo? No. 00:05:28.779 --> 00:05:31.420 But it is a functioning city with schools and 00:05:31.420 --> 00:05:34.459 traffic jams. The ghosts were just people who 00:05:34.459 --> 00:05:37.680 hadn't arrived yet. Okay, but at what cost did 00:05:37.680 --> 00:05:40.100 they arrive? And look at the absurdities involved 00:05:40.100 --> 00:05:42.689 in getting there. You have places like Tan Du 00:05:42.689 --> 00:05:45.990 Chang, the quote -unquote fake Paris near Hangzhou. 00:05:46.149 --> 00:05:48.870 They built a replica Eiffel Tower. They built 00:05:48.870 --> 00:05:51.529 these Haussmann -style boulevards. For years, 00:05:51.610 --> 00:05:54.709 it was virtually empty. They even hired foreigners 00:05:54.709 --> 00:05:57.509 to wander around during property fairs just to 00:05:57.509 --> 00:06:00.230 make it look international. It was an erotic 00:06:00.230 --> 00:06:03.569 fantasy of modernization, not a city. It was 00:06:03.569 --> 00:06:05.970 a spectacle designed to sell units to speculators, 00:06:06.050 --> 00:06:09.459 not to house workers. Tianducheng is an extreme 00:06:09.459 --> 00:06:12.740 example of the architectural mimicry, sure, but 00:06:12.740 --> 00:06:17.040 even Tianducheng filled up. By 2017, it had 30 00:06:17.040 --> 00:06:20.519 ,000 residents. Why? Because the spillover from 00:06:20.519 --> 00:06:23.740 Hangzhou eventually reached it. But the ultimate 00:06:23.740 --> 00:06:26.480 counter -argument to your waste theory has to 00:06:26.480 --> 00:06:31.000 be Pudong. In the early 90s, Pudong, that iconic 00:06:31.000 --> 00:06:34.259 skyline of Shanghai across the river, was mocked. 00:06:34.540 --> 00:06:38.259 Economists called it a statist fantasy. a Potemkin 00:06:38.259 --> 00:06:41.199 village. They said no one would move their offices 00:06:41.199 --> 00:06:44.160 there. And today, it is one of the most significant 00:06:44.160 --> 00:06:47.220 financial centers on the planet. If you had bet 00:06:47.220 --> 00:06:50.259 against Pudong in 1995 because it was empty, 00:06:50.379 --> 00:06:53.680 you would have been very, very wrong. But Pudong 00:06:53.680 --> 00:06:56.420 is attached to Shanghai, the economic engine 00:06:56.420 --> 00:06:59.879 of the country. It's prime real estate that is 00:06:59.879 --> 00:07:02.459 very different from building a massive new district 00:07:02.459 --> 00:07:05.800 in a Tier 3 or Tier 4 city where the economic 00:07:05.800 --> 00:07:08.720 fundamentals just aren't there. The mechanism 00:07:08.720 --> 00:07:10.920 is the same, though. And this is the power the 00:07:10.920 --> 00:07:13.800 Chinese state has that Western developers just 00:07:13.800 --> 00:07:16.660 don't. They can force occupancy. Look at the 00:07:16.660 --> 00:07:19.199 Changgong District in Kunming, another ghost 00:07:19.199 --> 00:07:21.819 city in 2012. So what did the government do? 00:07:22.199 --> 00:07:24.579 They didn't just lower rents. They moved the 00:07:24.579 --> 00:07:26.680 leading universities there. They moved the municipal 00:07:26.680 --> 00:07:29.139 government headquarters there. They built a subway 00:07:29.139 --> 00:07:31.620 line connecting it to the old city center. They 00:07:31.620 --> 00:07:33.480 have levers to move human capital that market 00:07:33.480 --> 00:07:36.540 economies simply do not possess. Forcing occupancy 00:07:36.540 --> 00:07:39.839 is a terrifying concept if you care about individual 00:07:39.839 --> 00:07:42.759 choice. But let's pivot to the people actually 00:07:42.759 --> 00:07:45.519 buying these units. Because walking through these 00:07:45.519 --> 00:07:48.079 cities, the weirdest thing isn't just that they're 00:07:48.079 --> 00:07:51.480 empty. It's that they're sold. Almost all those 00:07:51.480 --> 00:07:54.600 dark windows belong to someone. This brings us 00:07:54.600 --> 00:07:57.600 to the investment culture. In the West, you buy 00:07:57.600 --> 00:07:59.500 a house to live in or maybe you rent it out. 00:07:59.620 --> 00:08:02.459 In China, there is this phenomenon where people 00:08:02.459 --> 00:08:05.399 buy apartments and intentionally leave them empty. 00:08:05.839 --> 00:08:08.920 We call it low housing utilization efficiency. 00:08:09.459 --> 00:08:14.259 It dropped from 84 % in 2010 to 78 % in 2020. 00:08:15.069 --> 00:08:17.470 Why buy an apartment and just let it gather dust? 00:08:17.769 --> 00:08:20.069 Because you're looking at it through the lens 00:08:20.069 --> 00:08:23.649 of a Western investor who has options. If you're 00:08:23.649 --> 00:08:25.870 a middle class person in the U .S., you put your 00:08:25.870 --> 00:08:30.569 money in the S &P 500 or bonds or 401k. In China, 00:08:30.649 --> 00:08:33.590 the stock market is notoriously volatile. It's 00:08:33.590 --> 00:08:36.549 often compared to a casino. The bond market is 00:08:36.549 --> 00:08:38.409 not really accessible to the average person. 00:08:38.509 --> 00:08:41.169 And capital controls mean you can't easily move 00:08:41.169 --> 00:08:43.019 your money out of the country. So where do you 00:08:43.019 --> 00:08:44.919 put your savings to protect them from inflation? 00:08:45.259 --> 00:08:49.879 You put them in concrete. Exactly. You buy commodity 00:08:49.879 --> 00:08:53.220 housing. And this is crucial. You have to distinguish 00:08:53.220 --> 00:08:57.360 between the tier cities. The gray income, money 00:08:57.360 --> 00:09:00.019 that isn't reported to the taxman, which some 00:09:00.019 --> 00:09:03.679 economists think is 10 % of the entire GDP, floods 00:09:03.679 --> 00:09:06.279 into the market. But it doesn't go everywhere. 00:09:06.480 --> 00:09:09.419 It goes to tier one cities like Beijing, Shanghai, 00:09:09.639 --> 00:09:12.279 Shenzhen. These are the New Yorks and Londons 00:09:12.279 --> 00:09:15.159 of China. Investors view real estate there as 00:09:15.159 --> 00:09:18.139 a safe deposit box in the sky. It doesn't matter 00:09:18.139 --> 00:09:20.620 if no one lives there. The point is that it holds 00:09:20.620 --> 00:09:23.200 value. But that logic only works if the value 00:09:23.200 --> 00:09:26.620 keeps going up. It's the definition of a bubble 00:09:26.620 --> 00:09:30.279 psychology. And it's driven by this intense cultural 00:09:30.279 --> 00:09:32.899 pressure. We have to talk about the mother -in 00:09:32.899 --> 00:09:35.899 -law economy. In China, for a young man to be 00:09:35.899 --> 00:09:38.059 considered eligible for marriage, he generally 00:09:38.059 --> 00:09:40.649 needs to own a home. It's not a preference. It's 00:09:40.649 --> 00:09:42.970 basically a requirement. So you have parents 00:09:42.970 --> 00:09:45.870 and grandparents pooling three generations of 00:09:45.870 --> 00:09:48.409 savings to buy a potentially overpriced apartment 00:09:48.409 --> 00:09:51.029 just so the son can get a date. It's heartbreaking, 00:09:51.210 --> 00:09:53.429 honestly, because it traps entire families in 00:09:53.429 --> 00:09:55.850 this one asset class. It is immense pressure, 00:09:56.070 --> 00:09:58.809 yes. But looking at it as purely speculative 00:09:58.809 --> 00:10:02.450 misses the functional utility. That apartment 00:10:02.450 --> 00:10:05.190 bought for the son is also a hedge for the parent's 00:10:05.190 --> 00:10:07.710 retirement. The Chinese household savings rate 00:10:07.710 --> 00:10:10.039 is incredibly high. They aren't buying these 00:10:10.039 --> 00:10:12.620 homes on subprime mortgages with zero down payment 00:10:12.620 --> 00:10:15.460 like the U .S. in 2008. They are buying with 00:10:15.460 --> 00:10:18.440 massive down payments, often 30 to 50 percent 00:10:18.440 --> 00:10:20.840 cash. That makes the market more resilient than 00:10:20.840 --> 00:10:23.519 you might think. And remember the forecast? 160 00:10:23.519 --> 00:10:26.879 million new urbanites between 2011 and 2020. 00:10:27.240 --> 00:10:29.700 The fundamental demand for shelter was real, 00:10:29.840 --> 00:10:32.500 even if the timing of the purchase was, you know, 00:10:32.500 --> 00:10:35.840 speculative. You say resilient. But I look at 00:10:35.840 --> 00:10:40.440 the post 2020 reality and I see a crash, a massive 00:10:40.440 --> 00:10:43.379 one. We cannot talk about this without discussing 00:10:43.379 --> 00:10:46.259 the three red lines. Right. The policy shift. 00:10:46.379 --> 00:10:50.000 For those who don't know, in August 2020, Beijing 00:10:50.000 --> 00:10:53.299 basically decided the party was over. They issued 00:10:53.299 --> 00:10:56.360 the three red lines. These weren't suggestions. 00:10:56.440 --> 00:10:59.799 They were strict financial ratios. Basically, 00:10:59.899 --> 00:11:02.100 if a developer wanted to borrow more money from 00:11:02.100 --> 00:11:04.659 banks, they had to keep their debt to cash and 00:11:04.659 --> 00:11:07.519 liability to asset ratios below certain limits. 00:11:07.779 --> 00:11:10.899 They turned off the tap. And what happened? The 00:11:10.899 --> 00:11:13.820 biggest developers in the world, Evergrande, 00:11:13.840 --> 00:11:17.360 Country Guarded In, Shimao, they collapsed. They 00:11:17.360 --> 00:11:20.399 defaulted. It turned out they were running something 00:11:20.399 --> 00:11:23.919 like a Ponzi scheme, using money from new sales 00:11:23.919 --> 00:11:26.610 to finish old projects. When the liquidity stopped, 00:11:26.929 --> 00:11:29.450 construction stopped. I wouldn't call it a Ponzi 00:11:29.450 --> 00:11:31.529 scheme. I'd call it an over -leveraged growth 00:11:31.529 --> 00:11:34.230 model. But here is where we disagree on the nature 00:11:34.230 --> 00:11:37.409 of the crash. You see the defaults of Evergrande 00:11:37.409 --> 00:11:40.629 as the system failing. I see it as the system 00:11:40.629 --> 00:11:43.590 correcting. The government engineered this crisis. 00:11:43.850 --> 00:11:46.049 They saw the bubble you're talking about and 00:11:46.049 --> 00:11:48.929 they decided to pop it on their own terms. The 00:11:48.929 --> 00:11:51.629 slogan became houses are for living, not for 00:11:51.629 --> 00:11:54.730 speculation. It was an induced coma to prevent 00:11:54.730 --> 00:11:57.929 a total death of the economy later on. An induced 00:11:57.929 --> 00:12:00.909 coma? Tell that to the millions of people who 00:12:00.909 --> 00:12:03.350 prepaid for apartments that are now standing 00:12:03.350 --> 00:12:06.690 as unfinished concrete skeletons. We saw mortgage 00:12:06.690 --> 00:12:09.409 boycotts spreading across the country. People 00:12:09.409 --> 00:12:11.710 refusing to pay the bank for homes that didn't 00:12:11.710 --> 00:12:14.509 have walls yet. That's a breakdown of the social 00:12:14.509 --> 00:12:17.730 contract. And the economic fallout is the negative 00:12:17.730 --> 00:12:20.269 wealth effect. Explain that for the listeners, 00:12:20.389 --> 00:12:22.350 because it's the key to the current slowdown. 00:12:22.490 --> 00:12:25.470 While since 70 % of Chinese household wealth 00:12:25.470 --> 00:12:28.350 is tied up in property, compare that to maybe 00:12:28.350 --> 00:12:32.289 30 % in the U .S. When property values dip, people 00:12:32.289 --> 00:12:35.289 feel poor immediately, even if they don't sell. 00:12:35.490 --> 00:12:38.139 They stop going out to dinner. They stop buying 00:12:38.139 --> 00:12:41.360 cars. They stop taking trips. The entire economy 00:12:41.360 --> 00:12:44.980 freezes because the nest egg is cracking. It's 00:12:44.980 --> 00:12:47.279 a deflationary spiral that is incredibly hard 00:12:47.279 --> 00:12:50.480 to pull out of. It is painful. There was no doubt 00:12:50.480 --> 00:12:54.039 about it. The deflation is real. But look at 00:12:54.039 --> 00:12:56.580 the response. The government isn't letting it 00:12:56.580 --> 00:12:58.879 turn into a Lehman Brothers moment where the 00:12:58.879 --> 00:13:01.879 banks fail and the ETM stop working. They are 00:13:01.879 --> 00:13:05.379 managing the dissent. In 2024, they announced 00:13:05.379 --> 00:13:09.029 4 trillion yuan in financing for the whitelist 00:13:09.029 --> 00:13:11.909 projects, basically picking the healthy developments 00:13:11.909 --> 00:13:15.250 and ensuring they get finished. They are prioritizing 00:13:15.250 --> 00:13:17.610 the delivery of homes over the profits of the 00:13:17.610 --> 00:13:20.769 developers. The developers can go bankrupt, but 00:13:20.769 --> 00:13:23.370 the buildings must be finished. Okay, but are 00:13:23.370 --> 00:13:25.970 they finishing buildings or are they finishing 00:13:25.970 --> 00:13:29.190 future slums? There's a quote from the architectural 00:13:29.190 --> 00:13:32.129 critic Austin Williams that has always stuck 00:13:32.129 --> 00:13:34.899 with me regarding this era. He said the model 00:13:34.899 --> 00:13:37.940 was building shit, making a profit, and moving 00:13:37.940 --> 00:13:40.419 on. The quality of construction in these boom 00:13:40.419 --> 00:13:43.220 years was notoriously poor. We've seen reports 00:13:43.220 --> 00:13:45.539 of tough food drag projects, concrete that just 00:13:45.539 --> 00:13:48.460 crumbles in your hand. So even if they finish 00:13:48.460 --> 00:13:50.379 these ghost cities, do we really think they're 00:13:50.379 --> 00:13:52.299 going to last 50 years? Are they going to be 00:13:52.299 --> 00:13:55.740 demolished in 20? That is a valid concern for 00:13:55.740 --> 00:13:58.679 a specific project, certainly. Quality control 00:13:58.679 --> 00:14:01.179 was sacrificed for speed. But I want to zoom 00:14:01.179 --> 00:14:04.980 out to the 30 ,000 foot view again. We are debating 00:14:04.980 --> 00:14:07.940 the efficiency of the urbanization, not the necessity 00:14:07.940 --> 00:14:10.639 of it. If China had not built ahead of demand, 00:14:10.879 --> 00:14:13.159 if they had waited for the people to arrive before 00:14:13.159 --> 00:14:15.460 laying the bricks, you would have the urbanization 00:14:15.460 --> 00:14:18.559 nightmare we see in India or Brazil. Massive, 00:14:18.559 --> 00:14:21.480 sprawling shanty towns, favelas without sewage 00:14:21.480 --> 00:14:23.960 or power, gridlock that paralyzes the economy. 00:14:24.259 --> 00:14:27.240 China chose a different risk. They chose to waste 00:14:27.240 --> 00:14:30.289 capital to ensure capacity. I think that's a 00:14:30.289 --> 00:14:33.429 false dichotomy. You can plan for urbanization 00:14:33.429 --> 00:14:36.970 without building 65 million empty units and inflating 00:14:36.970 --> 00:14:39.779 a bubble that threatens the global economy. You 00:14:39.779 --> 00:14:42.000 can build infrastructure without distorting your 00:14:42.000 --> 00:14:44.559 entire GDP so that it relies on selling land 00:14:44.559 --> 00:14:47.500 to yourself. The waste we're talking about isn't 00:14:47.500 --> 00:14:50.360 just a few empty buildings. It represents trillions 00:14:50.360 --> 00:14:52.460 of dollars of labor and resources that could 00:14:52.460 --> 00:14:55.120 have gone into healthcare, into high -tech manufacturing, 00:14:55.559 --> 00:14:58.600 into education. Instead, it sits in the desert, 00:14:58.679 --> 00:15:01.220 slowly weathering. But is it wasted if it eventually 00:15:01.220 --> 00:15:03.519 gets used? That's the core of our disagreement. 00:15:03.840 --> 00:15:06.740 You look at an empty city in 2015 and see waste. 00:15:07.149 --> 00:15:09.850 I look at Zhenjingdong New Area, which was called 00:15:09.850 --> 00:15:12.870 a ghost city in 2012 and now has over a million 00:15:12.870 --> 00:15:15.830 residents, and I see a long -term asset. The 00:15:15.830 --> 00:15:18.129 urbanization ceiling hasn't been hit. They're 00:15:18.129 --> 00:15:21.029 still laming for 75%. That means hundreds of 00:15:21.029 --> 00:15:23.450 millions more people are coming. Those empty 00:15:23.450 --> 00:15:26.230 apartments in Tier 2 and Tier 3 cities, they're 00:15:26.230 --> 00:15:28.730 the inventory for the next decade. The ghost 00:15:28.730 --> 00:15:30.909 city paradox is simply that the hardware was 00:15:30.909 --> 00:15:32.990 installed before the software was ready to run. 00:15:33.269 --> 00:15:37.019 Or the hardware is obsolete. The population of 00:15:37.019 --> 00:15:39.919 China is shrinking now. That's the demographic 00:15:39.919 --> 00:15:42.779 twist we haven't touched on. The population declined 00:15:42.779 --> 00:15:47.019 in 2022 and 2023. If there are fewer people, 00:15:47.200 --> 00:15:49.919 who is going to fill these new cities? We might 00:15:49.919 --> 00:15:51.960 have reached the peak of the curve and now we're 00:15:51.960 --> 00:15:54.320 just left with a surplus. Demographics shift 00:15:54.320 --> 00:15:57.259 slowly. The urbanization rate, the move from 00:15:57.259 --> 00:16:00.440 rural to urban, still has room to grow even if 00:16:00.440 --> 00:16:03.649 the total population shrinks. Rural residents 00:16:03.649 --> 00:16:06.190 moving to cities will still need homes. But I 00:16:06.190 --> 00:16:08.710 will concede this. The era of build anything, 00:16:08.950 --> 00:16:11.769 anywhere is over. The government knows this. 00:16:11.889 --> 00:16:14.210 That's why the three red lines happened. They 00:16:14.210 --> 00:16:16.710 are transitioning from quality to quality. But 00:16:16.710 --> 00:16:18.649 I still maintain that looking back at the last 00:16:18.649 --> 00:16:21.330 20 years, the strategy of pre -building infrastructure 00:16:21.330 --> 00:16:24.110 was on balance as success for China's development. 00:16:24.389 --> 00:16:27.009 And I maintain that it was a gamble that paid 00:16:27.009 --> 00:16:30.320 off in some places. but left a toxic legacy of 00:16:30.320 --> 00:16:32.720 debt and bad assets that will drag down their 00:16:32.720 --> 00:16:35.659 economy for a generation. When you treat housing 00:16:35.659 --> 00:16:38.220 as a speculative financial product rather than 00:16:38.220 --> 00:16:41.620 a place to sleep, you distort society. You create 00:16:41.620 --> 00:16:43.860 a world where young people lie flat because they 00:16:43.860 --> 00:16:46.120 can't afford to participate, and where old people 00:16:46.120 --> 00:16:48.639 lose their savings because a developer overleveraged. 00:16:48.740 --> 00:16:51.919 It is the classic tension between the plan and 00:16:51.919 --> 00:16:55.379 the market, the efficiency of capital today versus 00:16:55.379 --> 00:16:58.120 the capacity for tomorrow. I think we can agree 00:16:58.120 --> 00:17:00.879 that the visual of the ghost city, those silent 00:17:00.879 --> 00:17:03.580 towers in the mist, is the perfect symbol for 00:17:03.580 --> 00:17:07.000 modern China. Massive ambition, incredible speed, 00:17:07.240 --> 00:17:09.839 and a terrifying uncertainty about what happens 00:17:09.839 --> 00:17:12.619 next. Indeed. And whether those towers eventually 00:17:12.619 --> 00:17:14.980 fill with life or crumble into the sand will 00:17:14.980 --> 00:17:17.079 likely determine the economic narrative of the 00:17:17.079 --> 00:17:19.640 next decade. That brings us to the end of this 00:17:19.640 --> 00:17:22.099 edition of The Debate. We hope you look at those 00:17:22.099 --> 00:17:24.480 skyline photos a little differently now. Thanks 00:17:24.480 --> 00:17:25.359 for listening. Goodbye.