Economy

Housing allowance

Erdos officials look for cash to prolong building spree

Erdos: famed for its ghost town

Last month, the Inner Mongolian city of Erdos staged the annual Miss World competition. It even hosted a home win, with Miss China Yu Wenxia (see WiC161) deemed the most beautiful contestant.

The event’s organisers claim that a billion viewers watched the show worldwide. But closer to home, interest seems to have been more subdued. “Miss World? Miss World… what is that? I have never heard of it,” one local told Women’s Wear Daily which was at the scene to cover the pageant.

Despite Miss China’s triumph, the magazine found it a tougher story to cover than it likely anticipated. In a possible first for the world of fashion journalism, one of its reporters was evicted from a catwalk show by police, and chased to the airport where he departed a far from welcoming Erdos after a mere 48 hours. Women’s Wear Daily says “no explanation” was given for why police had prevented its reporter from covering the fashion event.

So why all the fuss? Locals suggested it was because officials were already on edge, worried that visiting journalists might dig too deeply into the city’s recent real estate boondoggle. Breakneck construction has created what the BBC recently called “the biggest ghost town in China” in Erdos – not the kind of coverage likely to please the image-conscious bureaucrat.

The city’s government is also running late in paying for some of its public projects, reports Century Weekly magazine. As of August, Erdos owed around Rmb5 billion ($788 million) to construction companies that have been working on Kangbashi – the vast new suburb supposed to house a million residents. Visitors to Kangbashi all come away remarking how it seems so sparsely populated.

Moreover, the broader property market in Erdos has soured. In one district housing sales were down 93% year-on-year in the first quarter. Even prices at high-end projects like Star River have fallen from Rmb24,000 per square metre last year to Rmb15,000 today.

With property sales apparently in the doldrums, the local authorities have also lost another way of meeting their debts: handing over land instead of cash.

“Land is losing value now, and companies are unwilling to accept it,” a project manager at an Erdos road contractor told the magazine.

Adding to the local economy’s misery: the unravelling of private lending markets (see WiC127) and weakening prices for the mainstay of the regional economy, coal, as prices fall due to a weakening demand. One analyst reckons that only 101 of the 306 local mines are functioning as normal, with most closed or curtailing production.

All this has an impact on local tax receipts. Although Erdos saw its fiscal income increase by 8.9% in the first half of 2012, that is an unimpressive rate compared with the past ­– especially when Erdos still seems captivated by the construction bug. There are public plans to build another 600 kilometres of expressways, 14 new industrial parks and 18 power substations.

In total, the government has budgeted for Rmb150 billion of investment in 2012, which is in line with some of the extraordinary figures bandied around by other municipal bureaucrats recently (see WiC162).

Boosting the property market would be one way to rejuvenate the local coffers. The city government has tried a number of creative schemes to do just that – such as buying unoccupied housing itself and renting it to poorer families – but so far with little success.

Another way to raise money is to carry on borrowing it. Dongsheng Urban Construction Investment Group – a local government financing vehicle – has been diligently soliciting loans, including billions of renminbi from local companies like coal giant Inner Mongolia Yitai Group. But Dongsheng already looks over-leveraged, with liabilities worth Rmb14 billion at the end of 2011, compared to just Rmb634 million in 2008. In a weakening local economy, it seems unlikely that more borrowing offers a credible solution to the financing deficit.


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