The future of China’s ‘ghost cities’ |China Daily

Let us assume that 30 million tons of steel,was used in the so called ghost towns,15 years ago.After 30 year. when these buildings are replaced,this will be steel scrap,and its price will be double the price.of prime steel today.The cement is a dead loss.

But let us dig deeper.Bao Steel may bill steel to a builder,at say,200 usd/ton,but the Marginal cost of that steel,might be 100 usd/ton.This is not enough.The Marginal COST To the steel cluster,in a communist nation would be 15-20 usd per ton,as the coal mines and steel factory,ports,rails,roads etc.,are already in place.The difference between the coal tarriff and the marginal cost of coal is a TRANSFER PAYMENT FROM Bao steel to the coal mine (if Bao is buying Coal)

If Coal is selling at 50 usd/ton,the Marginal Cost would be 4-5 USD (being cost of power,diesel and cost of variable labour).

So the MARGINAL COST of the Ghost towns,would be 10-15% of the contracted value of the towns.

At that time,it was the RIGHT decision to set up these “ghost towns”,as the price of steel,coal,cement,paints,labour etc., was much lower,and so was their marginal cost.It made sense to lower the ENTIRE PRODUCTION cost of these plants, by MAXIMISING production,and then using the production,in so called GHOST TOWNS.The benefit of lowering the ENTIRE PRODUCTION cost of the steel,coal,cement plants,would be in the billions of USD.IF THE SAME INFRASTRUCTURE WERE TO BE SET UP AT TODAY’s PRICES OF steel,coal,cement,the cost WOULD BE MUCH HIGHER (far beyond the accrued Chinese Inter bank interest rates over the years)

As far as the banks who lent to the builders of these so called ghost towns – it is important to understand that the Banks have NOT funded the towns.The Banks have funded the input suppliers of these towns,id.est., the steel,cement,paints, furniture and appliances etc factories. In particular,the banks have implicitly funded,the profits of these input suppliers.

Then we calculate the employment provided to a mass of labour in these ghost town projects,and its attendant benefits and the management and technical expertise,developed by the builders,in these ghost town projects.

It must also be noted that the INCREMENTAL PROFITS earned by the steel,cement,paints,furniture and appliances etc. factories,as suppliers to the builders of the ghost towns – would have in the last 15 years,based on a ROCE of 20-30 % ,yielded an aggregate return of 1000-1500% to date (with the attendant revenue streams to the PRC,in the form of direct and indirect taxes,besides other incidental gains)

Hence,for a Communist nation,the Marginal Cost for the Cluster of the “Ghost Towns” (which includes the downstream supply chain benefits and the benefits to the state) is very low and MIGHT even be NEGATIVE,based on the Marginal Cost of the CLUSTER.

If the PRC calculates the incremental gains to the steel,cement,paints,furniture and appliances etc. factories,and their staff,over the past 15 years and the revenue earned by the state from this chain,over the last 15 years,the gains per se, could more than bail out the bank loans,to the so called ghost towns

IT MUST BE NOTED THAT THE LABOUR USED IN THE GHOST TOWNS,AND THE LABOUR USED (IN PART),IN THE INPUT SUPPLIERS,TO THESE GHOST TOWNS – would have had NO OTHER employment,were it NOT for the Ghost town projects. These millions of labour were introduced into the labour pool,ONLY due to these Ghost Towns.Of course,they would have inevitably entered into the labour pool – but only after 5-10 years (on such a large scale).

Hence,there is no loss to the PRC,on account of these so called “ghost towns”.