Don't Worry About 3rd and 4th Tier Cities, They Can Build New Districts

With the shantytown renovations on the way out, some analysts took a pessimistic view: Third and Fourth-Tier Cities Doomed As PSL Goes Away, Deleveraging Will Not End

With this avenue of growth slowing, cities may return to their old playbook of building entirely new districts.

iFeng: “棚改”之后,用“新区”来讲三四线城市的房价故事

As for ghost city concerns, one benefit local governments have is never having to pay off their debts. Chenggong, Yunnan started construction on a new district in 2003. It was still a ghost town a decade later, but it finally has come to life.
In Chenggong County, known as the “Hometown of Fruits” on the east bank of Dianchi Lake in Kunming, Yunnan Province, in just a few years, it became a new area of ​​Chenggong with dense steel and concrete. However, due to the lack of supporting facilities and the lack of population, the new city became a “ghost town”. The price of the tribute in 2013 was 5039/m2. In just 5 years, the price of the “Ghost Town” was over 10,000.

Yunnan Chenggong, which has been in construction since 2003, has been developed for 15 years. Was known as a ghost town because of lack of popularity. Until 2014, the entire phase of the first phase of Kunming Metro Line 1 and Line 2 broke through, breaking the traffic bottleneck between Chenggong and the main city, and the tribute gradually improved. Another factor that accelerates this transformation is the move of the municipal government and key institutions. A business district is gradually formed around Chenggong University City. Many parents choose to buy a house in Chenggong, investing in customers and brand development for their children to go to school. Merchants also swarmed in, and the "new district" has made a story of high housing prices.
2013 and 2018 photos.
Reliance on a single industry, as happened in Ordos, also plays a role in the decision to create new districts:
Construction of a new district triggered by a coal mine

Zhang Le’s hometown is a four-line county town. The urban area of ​​the county town is very small and belongs to the typical county town of China. However, seven or eight years ago, a large coal mine was discovered in the north of the city, and the economy entered the fast lane. The development of the old city is weak, and the local government decided to make the southern part of the city a new area and build a new city in the south of the city. However, the construction of the new city takes time and is not attractive to developers. They are more willing to take the plot next to the old town. Faced with this stalemate, the government thought of a way to allocate a few plots of land in the new district and relocate schools and hospitals to the central area of ​​the Southern District New Town. With the opening of the transportation line, kindergartens, key middle schools and primary schools have settled in, the new district has gradually gained popularity, and the developers have gradually transferred to the new city to take the land. The land that was first auctioned several times, although the price has risen, has also been successfully sold. The size of the new district is five times that of the old city. With the construction of the new district gradually improved, the apartments and shops around the school have gradually become the favorite of the investment community. Since the school moved out of the old city, due to the loss of population, the price of the old city has come to an abrupt end, and the price of the new city has completed a leap in just four years.

These cities are undoubtedly a microcosm in the process of urbanization in China. The “shantytown renovation” may be withdrawn from the historical arena, but the story of the “new district” continues.
Taking the most optimistic view, even if all these ghost towns and new districts eventually fill up, at some point they stop pulling growth forward and engage in pure malinvestment. If local officials take their cue from cities like Chenggong, they might continue malinvestment for 15 or 20 years before throwing in the towel.

Additionally, the "war for talent" is already underway as cities compete for the cream of the college graduate crop as the youth population declines. The "hot" second-tier cities are making a bid to keep college graduates in their cities, while first-tier cities such as Beijing and Shanghai remain an ever present draw for talent.

But who cares about a few, or a lot, of empty buildings when you can socialize the cost through increases credit and money creation?

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