From Chinese Press

'Ghost Towns'

(China Daily)
Updated: 2010-04-20 08:11

The "ghost town" in Erdos reminds us of the negative influence of land-based fiscal finance, says an article in the Oriental Morning Post. Excerpts:

According to the media, the Kangbashi district in Erdos has become a modern "ghost town". There is almost no resident in the new district which can accommodate 1 million people, but housing prices here are up to 6 ,000 yuan per square meter.

Local officials blame planning, incomplete infrastructures and insufficient resident population for the emptiness of the town. Actually the empty city indicates the severe housing bubble during the process of urbanization.

In fact, this kind of empty town is not uncommon in many cities in China. Local authorities and real estate developers always cooperate to construct new districts.

The governments transfers the use rights of land to the developers at high price and help developers obtain loans from banks.

As long as housing sells sold well, real estate developers can gain enormous profits from the construction of a new district. Local authorities not only receive a huge amount of fiscal revenue, but may also attain remarkable local GDP growth in a short time.

Once the housing bubble bursts, the crisis in the housing market may spread to the real economies and have a severe negative influence on the economy. Thus land-based fiscal finance is unsustainable and should not be encouraged.

(China Daily 04/20/2010 page9)