China's Out-of-Control Construction Industry Defies all Logic and Sanity

The Ordos Shopping Mall sits empty, much like the rest of the city that surrounds it.

China's ghost cities aren't going away. Even as Beijing wants local governments to move away from GDP targeting and is more focused on developing social housing, wasteful construction still plagues China.

A report from CLSA's Nicole Wong, cited by The Wall Street Journal, found that the problem lies in the excess supply in China's third-tier cities. Vacancy rates for homes constructed in the past five years stand at 15% but are projected to rise over 20% in 2016-17, according to Wong. The very concept of vacant homes in China is barely fathomable for me.

Rob Schmitz, China correspondent for Marketplace/American Public Media, recently ran a story titled "China's economic boom leaves a trail of ghost cities." We reached out to Schmitz to get an update on Kangbashi and Yujiapu.

Here is an excerpt from our email interview with Schmitz:

Business Insider: How has Ordos changed now from when it first started making headlines a few years ago?

Rob Schmitz: I first visited Ordos in October 2010, the same year many other Western journalists had reported on the city. When I returned this year, there were a lot of interesting differences. Back in 2010, the few people who lived there seemed defensive about the Western media labeling the place a ghost city. This time, everyone I spoke to had come to an acceptance that Kangbashi (the proposed new city of Ordos) was most likely going to remain mostly vacant, and many seemed OK with that.  

Empty street in front of vacant residential complex in the city of Kangbashi, Ordos.

I spoke to one of the largest developers while I was there and he told me that Kangbashi had a population density similar more to a city in Canada or the U.S. than of a city in China, and he thought this was a draw for the city. But my conversations with folks didn't confirm this. I've never seen a city of similar physical size in Canada nor in the U.S. as empty as Kangbashi is today, and most of the people I spoke to during my latest visit didn't seem very happy to be living in a place where most of the buildings were empty.

Another big difference between this time and last was that the Ordos government has moved its headquarters to Kangbashi, so there are more people there during the day around the city's civic center. That said, the government of Ordos has actually increased the size of the city since 2010 by building more skyscrapers and infrastructure including a park with a large lake, three sports stadiums, and a skyscraper office park on the banks of the lake which are under construction.

I walked through a development of more than a dozen 20-story high-rises built adjacent to this office park, and there were no signs of life. The same developer I mentioned above also expressed concern over the fate of three gigantic sports stadiums built specifically for China's 'Ethnic Minority Traditional Sports Games' of 2015 outside of Kangbashi. It was surprising that after being admonished by China's own state-run press, Ordos' government has continued to build at the same rate as it had done before.

Ordos is a province in north-central China, in Inner Mongolia, about 500 km west of Beijing.

Ordos has issued a construction ban to halt any further wasteful projects,
scheduled to go into effect in three years. Before then, the government is
spending hundreds of millions of dollars on three gigantic
sports stadiums for the 2015 Chinese Ethnic Games.

The last difference from last time is that real estate prices in Kangbashi have plummeted since my visit in 2010, and I met dozens of migrant workers who were renting vacant office spaces as apartments for as low as $65 a month. These spaces weren't built to house people, but one office building I visited was full of migrant workers at night, living in windowless office spaces and using an office bathroom down the hall to bathe.

I also visited a government office in charge of mediating disputes between shadow bankers and those who couldn't afford to repay their loans. This is a very big problem in Ordos, as most businesses there would never qualify for a loan from a state bank, and now that the local economy is doing so poorly, many businesses have gone bankrupt. The office was in charge of repossessing whatever assets they could get from those who owed money. Their storage room was full of refrigerators, flat-screen TVs, and shelves full of dozens of bottles of high-priced Baijiu (Rice Wine) which they had seized.

BI: Do the people that you meet in these ghost cities have any plans of returning to their hometowns or are they optimistic?

RS: Many have already returned home. Those who are left are looking to make a little money and then leave when the economy finally fizzles out for good. Keep in mind that nearly twenty miles away from Kangbashi (the largely empty city) is Dongsheng, which is known as the old city, and actually has a functioning economy and population, so many people are watching this unfold from there.

Construction work on Yujiapu, planned to be
"the financial capital of the world,"
has been largely put on hold
(above is an artist's conception)

BI: Some, like Stephen Roach, have argued that these ghost cities can be explained away as part of China's urbanization plan. In your experience, does this add up?

RS: Perhaps some of them can, but for the most part, I don't agree with this statement. While it is true that some cities are filling up – the outskirts of Zhengzhou, which the TV program "60 Minutes" profiled a couple of years ago as a ghost town is a good example of a city that has defied early criticisms – other cities like Ordos do not fit neatly into China's urbanization plan.

Roach uses the Pudong district of Shanghai as an example of a place that was built, stood empty for a while, and then filled up, the message being other empty cities like Ordos just need time. It's important to remember that 1. Pudong was built in the 1990s, before China had even entered the WTO and was on the cusp of more than a decade of double-digit GDP growth. China's economy today is very different. It's slowing down and China's economic planners are taking the first steps to rebalance the economy from one built on investment-led growth to one built on consumer growth. That's not an easy transition to make, especially for an economy of this size, and it's going to require years of slower economic growth. 2. Pudong is in Shanghai, which is strategically located and is home to one of the world's largest ports. Ordos is in the middle of the desert and is running out of groundwater. If it's running out of groundwater while it sits largely empty, how could it survive if suddenly full?

If all of these ghost cities and ghost suburbs were part of a master plan hatched in Beijing by the central government, I'd imagine we'd see more affordable housing, as that's what is needed in China. Instead, most of the housing that's been built in these empty districts are luxury condos and villas. I have a hard time believing people will eventually move into these empty complexes in the next five years, especially in the scenario of a cooling economy. The other thing to keep in mind is that many of this new housing isn't built well, and it's hard to imagine them retaining their value over the time it may take for China's economy to return to its glory days. I think another danger is that once housing prices begin to plummet – which we are already seeing initial signs of in second tier cities in China – it'll devastate the financial stability of cities like Ordos. 

I think it's important to remember, too, that the ghost city phenomenon in China is partially due to how local governments are forced to finance themselves. Local governments in China are in a perpetual cash squeeze because they have to hand over a bulk of their tax revenue to the central government and because the central government often orders localities to build all sorts of infrastructure projects but Beijing often neglects to help with funding. Because the Party owns all of the land in China, local governments solve their funding problems by seizing land from their poorest residents, giving them a paltry sum in return, and then they sell the land to developers, essentially flipping real estate on a massive scale. Of course this has the added benefit of raising GDP figures, increasing the chance that local leaders will be promoted within the Party.

BI: Do you see more Chinese ghost cities propping up? Is it possible that some ghost cities are worse than others?

RS: I think each ghost city/ghost suburb should be treated differently – each of them has its own unique background and circumstances. Some of them will survive – we've already seen that happen in places like Zhengzhou and even in some of the exurbs of Shanghai that have filled out – but many won't. I was talking with Arthur Kroeber at GK Dragonomics a couple of months ago, in my mind one of the best experts on China's economy, and he was telling me about the city of Guiyang and how the province it belongs to, Guizhou, has an 80% debt-to-GDP ratio, which is incredibly dangerous. 

Arthur's usually pretty bullish on China's prospects, but he threw his optimism out the window when talking about the empty suburbs of that city, where hundreds of thousands of apartments sit, empty, while the largely mountainous province continues to plod along as one of China's poorest. The FT's (moving to The Economist soon) Simon Rabinovitch did a great story about all of Guiyang's empty housing, and what's happened there looks pretty scary. 

I think whether we see more ghost cities popping up depends on whether the central government is serious about promises to overhaul the GDP-based local official evaluation system and the way that local governments finance themselves.

BI: What's the most bizarre experience you've had in China's ghost cities?

RS: My first morning in Kangbashi, I woke up and walked through the empty hotel lobby to take a look outside onto the public square. There wasn't a soul in sight, and the first birds of spring were singing outside. The only other sound was Muzak pumping through the speakers from the hotel. As I looked around for any signs of life, I suddenly recognized the song. It was a Chinese version of Simon and Garfunkel's "Sound of Silence" played with a Chinese erhu.

China's most famous ghost cities

Malta Boat Deliberately Sunk 'Leaving 500 Migrants Dead' - What's the Solution?

Maltese authorities have launched naval missions to find and rescue migrants in trouble

About 500 migrants are feared dead after their ship was rammed by another boat near Malta last week, a migration body said.

Two Palestinian survivors told the International Organisation for Migration (IOM) that the boat had been intentionally sunk by traffickers.

They said the boat had left Damietta in Egypt in early September.

The IOM says that more than 2,500 people are now believed to have drowned in the Mediterranean this year.

News of the sinking near Malta emerged as another vessel carrying 250 people sank off the coast of Libya.

Over 200 people are feared to have drowned in that incident. Is it possible they are talking about the same sinking? See map below.

'Violent confrontation'
IOM spokeswoman Christiane Berthiaume said that the two survivors from the Malta sinking were rescued on Thursday, the day after their boat sank.

They said traffickers rammed the boat after a "violent confrontation" on board. The IOM said there were nine known survivors in total.

The boat had been carrying Syrians, Palestinians, Egyptians and Sudanese, the survivors said.

Major migrant boat tragedies:
March 2009: More than 200 African migrants drown after their boat sank off the coast of Libya
October 2013: 366 people, mostly Eritrean, die when their boat catches fire and sinks near Lampedusa
August 2014: Around 170 feared dead after another boat sinks off Libya

Map showing approximate location of ship sinking

The passengers, who included women and children, were reportedly told to move to a smaller, less safe boat. When they refused, the traffickers sank the larger vessel, the eyewitnesses said.

The Maltese authorities have not yet commented on the incident.

The UN says more than 130,000 migrants have arrived in Europe by sea this year, compared with 80,000 last year. Italy has received more than 118,000 migrants, the UN said.

Many attempt to cross from North Africa and the Middle East in unsafe and overcrowded vessels.

The UN's Andrej Mahecic told the BBC that more than half of those arriving by boat were refugees from Syria and Eritrea.

Eritreans and Somalians who attempt the journey to Europe have first the difficult task of crossing the Sahara Desert. Samson Kidane was one such refugee: "I still can't believe it when I think about the Sahara," said Samson Kidane, an Eritrean who is now a refugee in Switzerland.

"It was so difficult to cross. We were more than 30 people in a small automobile, and later we were in a container, more than 120 people for 24 hours."

Eritrea has forced military conscription for an unlimited time period. Everyone must join the military without knowing when, or if, they will be able to get out.

After crossing the Sahara, which cost each man more than $1,000 (£621; 735 euros), he and his friends had to find what he calls a "businessman" to get them across the Mediterranean.

Samson Kidane

"If you pay the money for the journey, the businessman sometimes disappears with the money," he said.

In the end his trafficker took another $1,200 from each member of the group, and organised five small boats, each carrying around 30 people.

After 53 hours at sea, Mr Kidane arrived in Italy. But only two boats arrived. Three had sunk, one of them carrying his best friend.

Until June of this year, Switzerland accepted avoidance of Eritrea's military service as a valid reason for claiming asylum, and the country now has one of Europe's biggest communities of Eritrean refugees.

But Switzerland, like many European countries, no longer allows applications for asylum to be made at its embassies abroad, meaning that anyone wanting to make a claim must make their way, somehow, to Switzerland.


Human rights groups suggest Europe's asylum policies are a contributory factor to the regular boat tragedies in the Mediterranean.

They are right, of course, but the problem is much more complex than that. European countries (mostly Christian in name, at least, if not in practice) are receiving so many immigrants from Africa and Asia, most of whom are Islamic, that the whole culture of the countries are rapidly changing.

Who would have thought that you would have Muslim spires and the call to prayer ringing out in France or Holland even 50 years ago? France now has between 5 &10% Muslim population. The French heritage population is declining rapidly from lack of births as people choose to have smaller families, or no children at all. Meanwhile, the Muslims average about 8 children per family, consequently they are becoming a larger and larger portion of the population everyday.

Some towns and cities have more Muslims than any other demographic and so are able to elect Muslims to positions in local governments. Many people believe that within 2 generations France will be almost completely Muslim. At that point they can introduce Sharia, if not sooner.

What's happening in France is also happening in most other countries in Europe, though they are a generation or two behind France. While the good news is that most French Muslims don't actually practice their faith, you can be certain that the day will come when an alBaghdadi or Aubakar Shekau will emerge and suddenly they will find their faith, one way or another. Then all will be required to convert to Islam, leave France, or die. Can you imagine France without Frenchmen?

This is why Marine Le Pen is doing so well, because people are actually beginning to understand this. Left-leaning people cannot see it. Sweden just elected a left-wing government, so it's likely they will continue to receive Muslim immigrants for the next four years. At some point in the near future all of Europe will be electing right-wing governments hoping they can clean up the mess that the lefties made of their country, but it will be too late then. I hate to think of what will happen when they try.

So what's the solution? Russia and Germany (I think) require all immigrants to learn Russian, or German. Will that make a difference? Most EU countries have already begun to cut back on immigration, at least a little, but that won't slow the desperate attempts of Africans and Asians trying to get to Europe. 

The solution lies in the source of the problems. Many countries in Africa or Asia are so pathetically poor that people are selling their children because they can't afford to feed them, selling them as young as 4 years old to pimps. Why is that happening? Because the countries that have the money to help the economies of these third world countries are spending it on war or entertainment and are completely ignoring the plight of the desperately poor.

Industrialized countries have economically raped the third world and we have the responsibility to help them to recover. But, instead, you have financial pedophiles with their hedge funds driving countries like Argentina into bankruptcy with the help of the US courts.

Multinational companies need to look beyond their short-sighted greed and invest in the third world. It will pay off in the long-term and will help stabilize politically volatile countries. Maybe then  people will want to stay home.

America Could Become a Third-World Country Overnight - Dr Ben Carson

Dr. Ben Carson is quite possibly going to be the next President of the United States. A brilliant neurosurgeon and one of the best conservative thinkers of the day, he lays out how easily America could collapse and turn to internal chaos.

Unfortunately, the panelists at this meeting seemed more interested in gun rights than in the possible complete collapse of the American economy.

On Monday at The New York Meeting, Dr. Ben Carson said he does not believe in gun registration because America's massive debt could transform the nation into a third-world country in which martial law may be imposed.

Dr Ben Carson

Carson, the retired neurosurgeon who has been getting buzz in conservative circles, said that he changed his mind and was against gun registration because of the "sinister internal forces" that could surface in that scenario. He said he "used to think they needed to be registered, but if you register them they just come and find you and take your guns." A politically expedient 'change of mind' for an ambitious Republican.

"If we were only concerned about external forces, then we would be okay," he said. "But there are some pretty sinister internal forces."

He then asked the audience to think about a scenario in which countries around the world drop the dollar as their reserve currency.

"We have a national debt that is so high, and it's being raised even higher," he said. "Now, the only reason we can do that is because we are the reserve currency for the world. What if that changes?"

Carson mentioned that Russian President Vladimir Putin threatened to "remove America as our reserve currency" if America imposed economic sanctions. This ought to scare the heck out of a lot of people; the US for one, but also China, Saudi Arabia, and all the other countries to which the US is heavily indebted.

"What if other people come along?" Carson asked, saying China and the U.N have mentioned doing the same. This has been discussed for a few years now. It would cost China a bundle if the American dollar were dramatically devalued, but it might be worth it, particularly should any military issues erupt between the two countries.

Just today, RT (Russia Today) announced that VTB, Russia’s second biggest lender, has signed a deal with Bank of China, which includes an agreement to pay each other in domestic currencies.

“Under the agreement, the banks plan to develop their partnership in a number of areas, including cooperation on ruble and renminbi settlements, investment banking, inter-bank lending, trade finance and capital-markets transactions,” says the official VTB statement.

The Renmindi is another name for the Yuan. I think I like Yuan better. But is this a signal from Putin that he is serious about removing America as reserve currency? It is certainly not beyond him to do something like that. And what would be the consequence?

"We would become a third-world nation overnight. Occupy Wall Street would be a walk in the park". 

"And all of a sudden, the things that would be going on in this country which would necessitate marital law... all this could happen very rapidly. We should be really concerned."

The Wall Street Journal's James Taranto mentioned previous comments of Carson's in which he gave an urban/rural distinction on gun rights. Carson had suggested that he would not want a crazy person to have a chance to get a semiautomatic rifle in high-density urban areas, while not having a problem with someone living alone in the countryside with those guns.

"Do you think the Supreme Court was wrong when it found that the Second Amendment guarantees the right to keep arms in Washington, D.C., and Chicago?" Taranto asked.

"I truly believe in Second Amendment rights," Carson said. "I would never advocate anything to interfere with Second Amendment rights; however, I do think we have to be intelligent." Remember, the NRA is reading this, Dr Carson.

He said his point in saying that was to address situations--like in Detroit--where people with AK-47s are mowing people down.

"We need to engage in a discussion about, 'Is there something we can do?'" Carson said before saying that "we have to keep in mind that law-abiding American citizens absolutely should have gun rights."

The New York Meeting is a monthly event run by Mallory Factor and O’Brien Murray. Panelists included Taranto, Peggy Noonan, and Sirius XM radio host and Breitbart contributor David Webb.

Another Banking Suicide During Remarkable Spree in Feb & Mar

Another banking suicide came to light yesterday. Another suicide that took place in two remarkable weeks in late February and early March of this year.

Six financial executives died in that period - most, obviously, by suicide, and perhaps all by suicide. But there are still questions about some including the man who shot himself 8 times with a nail gun. 

Almost all were fairly high level executives. 4 were in London, 3 in the US, and one in Zurich. We can now add one from Hong Kong. Li Junjie worked for JP Morgan and becomes the third executive from that company to have suicided.

His suicide came to light yesterday when JP Morgan Hong Kong pulled out of an art display that reminded them of the picture taken of Li Junjie before he jumped to his death.

A display of human figures on rooftops - by sculptor Sir Antony Gormley - has reportedly been cancelled because of the suicide of a Hong Kong bank worker.

Sir Antony Gormley's art meant to be unsettling

The Event Horizon exhibition was due to have been shown in Hong Kong, having toured London, New York and Sao Paulo.

Li Junjie

But investment bank JP Morgan is said to have asked for sponsorship to be withdrawn after one of its employees jumped to his death from a building.

The 31 sculptures that form the display were due to have been installed on Hong Kong's buildings after an exhibition of Sir Antony's work at the city's White Cube gallery.

However, the rooftop show was cancelled after Hong Kong Land, a property company, withdrew its sponsorship, according to The Art Newspaper.

The paper says that a branch of JP Morgan, which leases an office from Hong Kong Land, requested that the sponsor withdraw because of the suicide of one of its employees in February.

Li Junjie before jumping to his death

Bank worker Li Junjie had been photographed before he jumped to his death, standing on the edge of the roof of the JP Morgan office.

Two More Bankers Dead, Apparently

The chief executive of a private bank has been shot dead in the underground car park of his bank's headquarters in the principality of Liechtenstein, Swiss media report.

SRF online named him as Juergen Frick, head of Bank Frick, based in Balzers near the Swiss border.

Police confirmed the shooting of a 48-year-old man but did not name him.

Detectives named a former fund manager as the suspect and said they believed he may have taken his own life.

These are the first two bankers to die suddenly, as far as I am aware, since the sudden deaths of several bankers in the last week of January.

The suspect, Juergen Hermann, calls himself the "Robin Hood of Liechtenstein" on his website.

He is reported to have spent years feuding with Bank Frick and Liechtenstein's government over financial matters.

Liechtenstein police said officers had found Mr Hermann's passport which contained a hand-written note in which he confessed to the shooting and wrote "parting words".

They said that sniffer dogs had followed a trail to a stretch of the River Rhine where Mr Hermann's clothes were found.

Police said that although it appeared likely he had taken his own life, efforts to find him were continuing.

According to reports, Mr Hermann had been spotted on the car park's surveillance cameras.

Police quickly named him as the suspected gunman and warned the public that he was considered armed and dangerous.

Mr Hermann's car was later found abandoned in countryside near the Rhine, close to the borders with Austria and Switzerland.

Police sealed off a wide area and were using dogs and helicopters in the search.