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Overbuilding in china - A first hand report on the "ghost city" of Ordos


bz1516
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I just got back from a trip to china.  While there I took a side trip  to Ordos.  Ordos you may recall is China’s infamous “ghost city”, the city for 1 million never occupied and a symbol of China’s overbuilding.  Amazingly this mall was quite crowded.  There were a couple thousand people crowded into this mall with over 100 restaurants the day we visited for lunch.  The mall here stands in stark contrast to the picture painted by Jim Chanos and others of a country plagued by overbuilding, ready to collapse of its own weight.

 

My purpose in visiting Ordos, on what was really a personal pleasure trip to visit my daughter who works in HK,  was to see first hand what Ordos, the poster city of overbuilding in China, was really like. 

 

That as it turned out was not so simple a task, as there are in fact several Ordos’s in and around Ordos.  There is the new city of Ordos, the ghost city.  There is the original city spelled Erdos, but which is also called the Dongsheng District.  Then there is Ordos the greater area that would be the size of two or more large US counties.

 

The larger area of Ordos on a multi county MSA type basis has 1,750,000 people.  The Dongsheng district the original city known as Erdos has maybe 500,000 people.  This district has been overbuilt with an additional vacant capacity for another ~200,000 to 250,000 people.  Then there is the new city of Ordos.  It was actually not built for a population of 1,000,000 as the narrative goes, but for 300,000.  It’s been quoted in the western press as having but 10-20,000 people living in it.  That number was correct several years ago when it was first built and those people then were mostly government employees who were forced to live there.  Today several years later there are now ~65,000 residents now.  That’s almost 22% occupied, not great, but a huge difference from the zero population that has been popularized.

 

Looking at the region as a whole it is occupied by 1.75mm people, but has room for 2.2mm based on the additional building.  So a vacancy rate of ~20%.  Looking at the urbanized area there are 565,000 people living in the two Ordos cities, 15 miles apart,  where 1,025,000 could live, for a vacancy rate of ~45%.

 

Why talk about Ordos at all?  As the  worst case of Chinese overbuilding it represents an opportunity to see whether the canary in the coal mine will survive.  The fact is people are moving into Ordos.  There are three enclosed malls in the center of Ordos, roughly about 200,000 square feet each..  The one that gets all the publicity is the one that is completely empty.  A second general retailing mall is about 60% occupied with the first 2 floors more or less fully occupied and the middle floor half occupied, with the 4th and fifth floors empty.  The third mall is a food mall and it is bursting at the seams 100% occupied.  So while not very robust, hardly a ghost city either.  Surrounding the commercial center of the new Ordos, there are pockets of neighborhoods that look more or less fully occupied, actually looking like planned communities in the US complete with kids playing on the street.

 

Ordos has the highest per capita income in China driven by natural resources including coal.  The wealth there drove the overdevelopment.  But there is organic growth taking place in Ordos as evidenced by the fact that families are moving in, although at a rate that will take years for it to reach planned levels.

 

What I see here is what was a bubble, now taking advantage of its underlying growth.  Ordos has already reached bottom.  It does not have further to go down.  If it is the worst case by far in China, it is easy to see other overbuilt areas coming back a lot quicker.  The lesson I draw is that China will only improve from its overbuilding, even if it takes a while, not get worse. 

 

The other lesson is China is extremely complicated for westerners to understand and to be wary of those with pat answers.

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I am interested in knowing the knock on effects -

 

1) how did the developers pay back the lenders?

2) have the lenders written off the debts that were not paid as it has been a while since these projects were funded?

 

It would be great if you could provide additional information.

 

TIA.

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