To call Erdos China’s most famous “ghost city” isn’t an understatement. When Darmon Richter, author of the Bohemian Blog, toured the town in Inner Mongolia last year, he found plenty of vacant skyscrapers and empty streets. Hardly anyone was living there. At one point, Richter passed a troupe of ladies in lingerie. These dozen-or-so prostitutes outnumbered all the pedestrians he had been able to count that same day.
His taxi driver assured him that it was only a matter of time before tourists start to descend on Erdos: “They will come,” the man insisted. “You don’t think our city is beautiful? You’ll see. The people will come.”
But judging by developments in the city (which can also be spelled Ordos), the prospects look dim.
As WiC reported in issue 32, the area around Erdos is home to a sixth of China’s coal reserves and a third of its natural gas. Hopes of a thriving mining industry led to rapid expansion of the city – with a new greenfield district known as Kangbashi at the centre of a construction boom. It was a great time for local farmers, many of whom sold land to the city government for generous compensation. Some then lent out their cash to local developers, seeing it as a better investment than bank savings. China Economic Weekly reckons that lenders could get interest rates of up to 5% a month from the property firms.
This contributed much of the new capital in the property sector. Of the Rmb19 billion ($3 billion) poured into property development in Erdos in 2010, 56.4% was borrowed from such private lenders and almost all of the 500-odd property companies in the city tapped the funding source. That year, developers added more than 10 million square feet of housing, equivalent to about two-thirds of the floor space built in Beijing during the same year. But following the slowdown in the housing market, many of the developers in Erdos have gone bankrupt or pulled out of their projects. Unfinished construction sites are commonplace and even the completed apartment complexes are vacant.
The impact on city life has been stultifying. “Overnight, people with millions and billions of yuan became worthless. So they stopped going out to eat, they stopped drinking and they stopped going to nightclubs… Every night the city turns eerily quiet,” Morning News observes.
One private lender told Guangzhou Daily that he lent millions of renminbi to a local property developer. But the borrower couldn’t repay the loans, offering to barter units in his (mostly empty) complex instead.
There have been more unconventional forms of repayment too. Another borrower offered Rmb100,000 in gift vouchers at a local massage parlour as part of his repayment plan.
“We have no choice. If you don’t accept the gift cards we will receive nothing,” Liu Sheng, one of the private lenders, told the newspaper.
21CN Business Herald reports that the Erdos government has started purchasing unsold apartments from the most stricken of the developers and is now turning them into state-owned affordable housing projects. Local officials reckon that it will take three years to digest most of the unsold housing in this way (although some analysts say it will take much longer).
New home prices across the country dropped for a seventh consecutive month in November from the previous month, a survey by the China Real Estate Index System suggests. Then again, some property bosses were evidently buoyed late last month when the central bank cut lending rates (subsequently Yango Group paid a record price for a site in Shanghai). But the impact of the cut looks likely to be limited because banks are reluctant to make new loans. “Even if interest cost falls, access to borrowing is poor, so weak developers still cannot avoid a liquidity crisis when their sales slow,” Su Aik Lim from Fitch Ratings told Reuters.
In Erdos, the problems continue too. “In the past, hot money was everywhere. It was so easy to get a job. But now everyone is short of cash and all the developments have halted. It is really tough to make a living here,” laments erstwhile private lender Liu, adding that many locals have moved elsewhere for better job prospects.
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