China's rapid economic growth has been heavily fueled by a massive real estate boom, creating a significant housing bubble characterized by ghost cities and overbuilding, which now poses a substantial risk to its economy and social stability.
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If trouble comes in threes, then what'll
be the next global market to melt down
after the US and Europe? Some are
looking nervously at China. China has
been nothing short of a financial
miracle. In just 30 years, this statec
controlled economy became the world's
second largest, deafly managed by
government policies and decrees. One
sector the authorities concentrated on
was real estate and construction, but
that may have created the largest
housing bubble in human history. If you
go to China, it's easy to see why
there's all the talk of a bubble. We
discovered that the most populated
nation on Earth is building houses,
districts, and cities with no one in them.
them.
So this is Jen Xiao and we are on the
major highway or the major road and it's
rush hour
and it's almost empty. Gillum Tullik is
a Hong Kong based financial analyst who
is one of the first to draw attention to
the housing bubble in China. He's
showing us around the new eastern
district of Xeniao in one of the most
populated provinces in China. Not that
you'd know it. We found what they call a
ghost city of new towers with no
residents. Desolate condos and vacant
subdivisions uninhabited for miles and
miles and miles and miles of empty
apartments. Why are they empty? I I've
heard that they have actually been sold.
They've all been sold. They've all been
sold. They've all been sold. owned by
people in China's emerging middle class
who now have enough money to invest but
few ways to do it. They're not allowed
to invest abroad. Banks offer poultry
returns and the stock market is a roller
coaster. But 15 years ago, the
government changed its policy and
allowed people to buy their own homes
and the floodgates opened. So what they
do is they invest in property because
property prices have always gone up by
more than inflation. They believe it'll
always go up. Yeah. Just like they
believed in the US. Actually, property
values have doubled, tripled, and more.
So, people in the middle class have sunk
every last penny into buying five, even
10 apartments, fueling a building
bonanza unprecedented in human history.
No nation has ever built so much so
fast. How important is real estate to
the Chinese economy? Is it central? Yes,
it's the main driver of growth and has
been for the last few years. Some
estimates have it as high as 20 or 30%
of the whole economy. But they're not
just building housing. They're building
cities. Yes, that's right. Giant cities
being built with people not coming to
live here. Yes. I think they're building
somewhere between 12 and 24 new cities
every single year. Unlike our
marketdriven economy, in China, it's the
government that has spent some $2
trillion to get these cities built as a
way of keeping the economy growing. The
assumption is if you build it, they'll
come, but no one's coming. This is
really completely totally empty and it
goes up. Gillum took us to this shopping
mall that's been standing vacant for 3
years. Can I find this all over China?
Yes, you can. They've simply built too
much infrastructure too quickly. But I
see KFC behind you. Yeah. I see
Starbucks over there. I see some other
very recognizable American franchises
coming in here. Yeah. At least they Does
that mean they have faith that that this
is going to ignite? No, these are all
fake signs. This is to give potential
buyers the impression of what it might
look like if they moved in. They're not
real. So KFC didn't buy this space or
rent this space? No, they haven't.
Starbucks? No.
They just put the sign up. That's right.
It's all makeelieve. Non-existent supply
for non-existent demand. Look at that.
Swarovski Pia. They're hoping for
high-end, too. H&M Zara.
And it's all pmpkin. Yeah, it's surreal.
And it's everywhere. Like the city of
Ordos in Mongolia built for a million
people who didn't show up.
And no, you're not in England. You're in
Temp'stown, a development near Shanghai
built like an English village. And it
was finished, I think, around 5 or 6
years ago. And it must have cost uh
close to a billion US dollars. And
you'll see it's still standing there
empty. Well, I've heard that there is
some industry there or some business,
one business there. Marriage, wedding
pictures. Is that right? And what's more
uplifting than a wedding or 10? You can
see these empty developments on the edge
of almost every city in China. What
about the idea that China is urbanizing?
People are flooding into cities or want
to anyway from the rural areas by the
hundreds of millions. Yeah. And that
this really is a smart move. Build the
housing to accommodate the urbanization
process. Well, so people are being moved
into the cities, but that doesn't
necessarily mean that they can afford
these apartments, which, you know, cost
$100,000 US or whatever. I mean, these
are poor people moving into the cities.
So, they're building the wrong sort of
apartments. And what's worse, to build
all these massive cities, they've had to
tear down what was there before,
clearing rice fields and displacing by
some counts, tens of millions of
villagers. On the edge of Janggho,
Gillum and I came upon a strange sight.
I'm just watching what they're doing. Do
you have any idea? I think they're
trying to recycle the bricks. These
villagers are salvaging what's left of
their homes bulldozed to make room for
more empty condos already encroaching in
the distance. There are all these empty
apartments over here. Can they
conceivably move into those upscale
places? Most people in China live about
or less than $2 a day. And these
apartments probably cost upwards of 50
or $60,000 US. So it's very unlikely.
What will happen to them? Do you think
they'll be forced to relocate somewhere?
I have no idea where they'll go. These
are the immediate casualties of the
building boom. And there's another
problem. Analysts warned that all this
building has created a bubble that could
burst. So if the bubble bursts, who's
left holding the bag? There are multiple
classes of people that are going to get
wiped out by this. Um, people who have
invested three generations worth of
savings, so grandparents, parents, and
children into properties will see their
savings evaporate. And then, of course,
there's 50 million construction workers
who are working on all these projects
around China. The prognosis of a bubble
about to burst isn't only coming from
financial gloom and doomers. We heard it
from the most unlikely source. Are you
the biggest home builder in the world?
Yes, I I think maybe that may be. Yes.
Only the quantity, not quality. Wangure
is modest, but his company Vanke is a $
53 billion real estate empire building
more homes than anyone in China. He was
born on the front lines of communism and
joined the Red Army, but he secretly
read forbidden books about capitalism.
So that when China liberalized its
economy, he rushed to the front lines of
the free market. Even he thinks today's
situation is out of control. Are homes
in China too expensive today? Yeah. Here
here's a number that I saw. A typical
apartment in Shanghai Uhhuh. cost about
45 times the average resident's annual
salary. Even higher. Even higher. What
does that mean for your economy if if if
it's just too expensive for the vast
majority of people? So I think that uh
dangerous dangerous that's the um
bubble. So I think that's the problem.
Is there a bubble? Yes, of course there
is a bubble and the issue is will it
burst or not? That's the big issue. And
if that bubble that uh that disaster, if
it burst, it burst that disaster. To try
and prevent the disaster, the Chinese
government decided to act. Heard of
their one child policy? Since 2011,
China has had what amounts to a one
apartment policy where it's very hard to
buy more than one apartment in major
cities. Because of this, prices plunged.
The bubble was being tamed and yet the
taming was creating all kinds of
unintended consequences. Are many
developers in debt? Yes. And are many
stopping development in the middle of
projects because they don't have the
money to go forward? Yeah, that problem
that that a huge problem. A problem
because the slowing down of construction
led to a downturn in the overall
economy. Unfinished projects dot China
and not just apartment buildings. Look
at this. Can you believe it? Analyst
Anne Stevenson Yang, who has traveled
across China, showed us a giant project
all but abandoned in the port city of
Tanzhin with concrete skeletons as far
as the eye can see. The plan is to build
a new financial district to rival
Manhattan, including a Lincoln Center
and a World Trade Center, only taller,
but it all seems frozen. There's
supposed to be a Rockefeller Center
here. I hope they have a Christmas tree,
too. Skating rink. City officials told
us everything stopped because developers
want to build all the facades at once to
match. But on the ground, we heard a
different explanation. workers told us
that many of these buildings haven't had
any work done on them for weeks, months,
as if the developers just don't have the
money to go on. It's true. You see that
happen first that migrant workers will
go home. That's often the first sign
that the debt crisis is starting. The
debt crisis.
Oh, and you stop paying your bills, then
everything stops. It could become a debt
crisis because of the huge loans most of
the developers took out. If they can't
repay them, the whole economy will seize
up. The government's great fear is that
all this could lead to social unrest.
And that's not hypothetical. Last year,
when home prices fell, it infuriated all
those owners of multiple dwellings who
watched the value of their nest eggs
plummet. And there's already been some
demonstrations over real estate around
the country. Yeah. Have you had
demonstrations against your showrooms
anywhere? Your company often. So often
Wang sure shuddters to think what would
happen if the bubble actually burst. If
that bubble broken that maybe who know
what will happen? Maybe that maybe I
answer maybe next Arabic spring. Arabic
spring. You mean people coming out and demonstrating?
demonstrating?
A lot of economists say that it's too
big for even this government to control.
Uhhuh. I believe that top leadersh have
the enough
smart to deal with that. You think
you're praying they do. You're going
like that. Look, but that's uncertain.
Meanwhile, people who can afford it are
still buying as much real estate as they
can. They're even finding ways around
the one apartment restriction in big
cities. Can't buy in Beijing? Just cross
the city line. And the boom is in full
swing. Flyers advertising new projects.
Potential buyers crowding buses to see
new construction. And new owners line up
to register their new apartments.
Like us in our bubble, they just don't
Go to 60 minutes overtime.com to hear
what one of the richest women in China
has to say about criticizing her
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