The path of bankruptcy which crippled the once booming industrial city of Detroit is now being followed by certain cities in China

Detroit clones cropping up around China

Staff Reporter

2013-07-21

The path of bankruptcy which crippled the once booming industrial city of Detroit is now being followed by certain cities in China. These cities, such as Ordos and Wenzhou, develop rapidly without considering market demand and become “ghost towns,” according to the China Securities Journal.

The difference between Detroit and ghost towns in China, said Yang Shaofong, chairman of Chinese property developer Conworld, is that the latter will never go bankrupt because Beijing will always bail them out through policy support. Many of the ghost towns are actually already bankrupt.The cities, much like Detroit, are sparsely populated and full of tattered, abandoned houses. They also share several common features: a homogenous industrial structure, rapid population decline and failed economic restructuring. Detroit fell into bankruptcy slowly after its automobile industry crumbled and tax revenue shrunk along with population decline. Ordos, which is known for its rich resources, developed and expanded rapidly to reach ambitious development goals and failed as quickly as it rose, said Yang.

Municipal governments in the floundering cities overemphasized performance and GDP growth and built nearly identical infrastructure, business districts and industrial parks, without taking the market and demand into account. Yang estimates that the number of idle houses in new business districts and industrial parks across the country is innumerable and still increasing since many of them are under construction.

These bankrupt cities would never file for bankruptcy; China has no definition for “government bankruptcy” and Beijing saves them through administrative measures anyway. Detroit, however, chose to file for bankruptcy because its present financial status cannot be resolved without intervention, according to Detriot mayor Rick Snyder.

Yang called for financial reform and realistic development goals to save the empty cities. Municipal governments should transform their economies and open up the private loans business. Ordos and other resource-rich cities should be able to slowly recover in two to three years.

Beijing should also play the role of a coach instead of a teammate in boosting urbanization, allowing the Chinese economy to be market-oriented. Beijing should help farmers obtain household registration when they move to the cities and allow them to trade their lands in the rural areas instead of resolving these issues through the property market, said Xu Yili, a commentator of China Network Television.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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