Tags: Roach | China | ghost | economy

Stephen Roach: Chinese Economy Is Sound, Talk of Ghost Towns Misguided

Thursday, 30 Aug 2012 08:32 AM

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The Chinese economy is sound and talk that a property boom bubbled to the point that the country was building ghost towns is misguided, as population growth will demand the infrastructure, said Stephen Roach, former chairman of Morgan Stanley Asia and current Yale economist.

Yes, the Chinese economy is cooling its growth, and yes, Chinese stocks are down 20 percent over a year, but that doesn’t mean the country is due for a hard landing, he wrote in a Project Syndicate column.

China is unique in that its modernizing economy will bring enormous numbers of people out of the countryside and into cities.

Editor's Note: I Wish I Were Wrong — Economist Laments Being Right. See Interview.

Many have pointed out the country is building bridges to nowhere and even building ghost towns, with nobody living there, as evidence the country is sitting atop a property bubble about to pop, but a look history says otherwise.

“[T]he pessimists’ hype overlooks one of the most important drivers of China’s modernization: the greatest urbanization story the world has ever seen. In 2011, the urban share of the Chinese population surpassed 50 percent for the first time, reaching 51.3 percent, compared to less than 20 percent in 1980,” Roach wrote.

Meanwhile, Organization of Economic Co-operation and Development projections see China’s urban population expanding by more than 300 million by 2030, or by about the current population of the United States.

“With rural-to-urban migration averaging 15 to 20 million people per year, today’s so-called ghost cities quickly become tomorrow’s thriving metropolitan areas,” Roach said, pointing to Shanghai Pudong as an example of how an “empty” urban construction project in the late 1990s became a fully occupied urban center, with a population today of about 5.5 million.

“A McKinsey study estimates that by 2025 China will have more than 220 cities with populations in excess of 1 million, versus 125 in 2010, and that 23 mega-cities will have a population of at least 5 million,” Roach noted.

“China cannot afford to wait to build its new cities. Instead, investment and construction must be aligned with the future influx of urban dwellers. The “ghost city” critique misses this point entirely.”

Meanwhile, steps to halt real estate speculation coupled with pro-growth fiscal and monetary policies are starting to soothe the Chinese economy, according to the country’s planning agency, the National Development and Reform Commission.

“The government’s policies and measures have been effective and the country’s economic growth is stabilizing at a slow pace,” Zhang Ping, the agency’s chief, was quoted by the official Chinese media as saying, according to Reuters.

“Speculative and investment demand have been effectively suppressed due to government control policies for the real estate market.”

Editor's Note: I Wish I Were Wrong — Economist Laments Being Right. See Interview.


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