China’s Ghost Cities—Revisited

Many a moon back—let’s call it 2011—I was in Changsha, China.

I was on a research assignment, digging into a big topic of the day in the West: Chinese ghost cities.

Newbuild cities all across China had been labeled “ghost cities” by the Western media because so few people lived there.

The Western storyline was that these ghost cities spoke to the fact that China was overstating its economic growth. It was buying way more commodities than it could possibly consume—nickel, iron ore, copper, etc.—and overbuilding these vast, useless cities as a way to keep the population employed and, thus, the economy roaring.

Others in the Western media eagerly pointed out that in these ghost cities and elsewhere, the country was overbuilding apartments for the same reasons and that the vast bulk of these apartments were just empty shells—four unpainted concrete walls corralling unadorned concrete floors, not even a sink, cabinet, bathtub, or kitchen appliance in sight.

Proof, they claimed, that China was a scam economy.

I knew differently.

Seven years earlier, I and my wife at the time had adopted a little Chinese girl who had been left under a tree in a shady park in Hefei, China. I spent nearly a month in China going through that process. I had time to talk to locals, to visit zoos, to shop locally, and whatnot.

And so, as the story of these ghost cities and ghost apartment towers spread, I decided to head back to China to do some boots-on-the-ground research and writing.

At one particular complex in Changsha, I and my interpreter sat down with a Chinese couple in their 30s who had just recently bought an apartment in a complex with 12 towers, each tower about 15 to 20 stories tall. Aside from the model apartment done up in a Western-style, every last apartment was an empty shell.

Every last one of them had also already been purchased, and typically in an all-cash deal.

Through the interpreter, I asked the couple if they’d bought the apartment as an investment.

Yes, they nodded.

Then I asked a question that was entirely a set-up on my part. I already knew the answer, but I wanted it on tape for proof.

I asked, “How much money do you think you will earn from this investment?”

The husband and wife looked at each other confused. They looked at the interpreter for a signal on how to understand the question. She looked at me for an explanation.

“You know, when you rent this out to other people, or when you sell it in a few years.”

Ahhh. They understood.

Then they shook their head no.

The husband then explained in Chinese:

You have the wrong definition of investment. We aren’t investing for money. We are investing for family. My parents live on a farm three hours away. And they are old. They will need to retire soon, but I cannot take care of them from here in Changsha, so we bought this apartment for them—we invest for their future. They will live here in retirement so my wife and I can take care of them.

We buy the apartment now because we have the cash now. Inflation will make an apartment more expensive years from now when my parents are ready to move. So better for us to buy it now and just wait.

Thus, a barren apartment, stripped of everything other than light switches on bare concrete walls.

When mom and dad are ready to leave the farm, that’s when all the accouterments of modern living will appear in the apartment.

A form of investment Western journalists never understood. They were applying a Western definition of investing to a uniquely Chinese way of preparing for the future.

Today, those ghost apartments and the ghost cities are hives of activity.

As a Bloomberg headline reported back in 2021: “China’s Ghost Cities Are Finally Stirring to Life After Years of Empty Streets.”

That is precisely—and I mean 100% precisely—what I said in 2011 was certain to happen over the next decade or so. And here we are.

For much of the last quarter century, China has been urbanizing its agrarian populace, moving millions and millions of people into cities. But you don’t just move millions of people into cities like Changsha, Beijing, Shanghai, Guangzhou, and the nearly 150 other cities already home to more than a million people. Too much strain on the infrastructure.

So, what do you do?

You build entirely new cities so that all the necessary infrastructure and services are in place as those people show up en masse. That means apartments and hospitals and shopping malls sit quiet and largely empty for years. But then one day the city is home to half-a-million people or more and everything they need is already up and running.

I’ve said this before, but it’s worth repeating: China plans for three generations, where America plans for Friday night.

And why do I share this dispatch today?

Well, the Economist newspaper ran a story recently under the headline: “Why is Xi Jinping building secret commodity stockpiles?”

The meat of the story is very much reflective of the ghost-city stories more than a dozen years ago.

The Economist aimed to answer its own question by noting that China is (in theory) fearful of another potential Trump presidency, given Trump’s proclivity for blaming China are everything and threatening a 60% tariff on Chinese goods (which hurts Americans more than it hurts the Chinese).

There’s some truth to that worry.

China could well be prepping for an antagonistic US administration that might seek to use commodities like food and energy to pinch China hard since the Middle Kingdom relies heavily on imports of soy, wheat, oil, and natural gas.

The Economist noted at the bottom of the story that “More striking still has been China’s effort to stash metals…” particularly copper, nickel, and others. But the article missed one of the big reasons for this.

I can tell you the reason: China’s effort with Russia to create a new global reserve currency.

Many still laugh at the idea that other countries will trust a China-backed reserve currency. But that is myopically ignorant.

In this new era of global inflation precipitated by extreme Western money printing and debt, scores of countries would gladly hold a reserve currency backed 100% by gold, silver, copper, nickel, iron, etc., rather than a currency backed by any government.

As such, the reserve currency China is building is not backed by China, per se. It’s backed by a vast basket of hard assets that China has been hoarding for years for this very purpose.

What I’m saying is that China’s reserve currency is the new ghost-cities story. Too many people disregard what China is up to because, in their “planning for Friday night” view, they just see a country buying too many commodities for reasons that make no sense.

However, in the “planning for three generations” view, China’s commodity buying makes perfect sense.

Just like you need infrastructure in place before you create millions of new city-dwellers, you need the backing in place before you release a new reserve currency backed by hard assets.

One day, I will be writing a follow-up to this, based on a Bloomberg headline that reads: “Now We Know Why China Was Buying All Those Commodities—A New Global Reserve Currency That Is Undermining the US Dollar.”

I don’t often say this, but: I guarantee I am right about this.