A coming crisis cannot be ruled out in China

I refer to the commentary “Why ghost towns won’t haunt China” (Oct 29). China has had 30 years of phenomenal economic growth, escaping unscathed even from the financial crisis of 2008/09.

To rebut many observers’ concerns over China’s unoccupied ghost towns as a symptom of its coming collapse, the writers made rightful reference to the United States because of similarities to its investments in railways and other industries in the mid-19th century.

Historical data has shown, however, that US economic growth during that century was punctuated by three land-induced recessions: 1836/37, 1857 and 1873. In the first, about 90 per cent of the country’s factories closed; there was a furious run on banks.

In 1857, prices of railway shares broke sharply on the New York Stock Exchange, and New York Central shares nearly halved. In 1873, factories closed in winter, banks failed, wages were cut, railways discharged workers and over 5,000 commercial failures were announced.

Back to China, where home prices are falling across major cities. In past US land-related recessions, land values fell by as much as half. If US history is a guide, and land-induced recessions were beyond the US government’s control, ghost towns will probably haunt China in the coming years.

Since China is the world’s second-largest economy, contributing to one-third of global economic growth, the consequences would be felt worldwide.