Ordos, a city in North China's Inner Mongolia Autonomous Region, used to be one of the richest cities in the country and was nicknamed "China's Dubai," but its economy is now spiraling downward.
First, the coal industry, a pillar of the city's economy, lost momentum. Then the bubble in the local real estate sector burst. Many buildings in the city are vacant at present, and now Ordos has a new nickname: "the ghost city."
Numerous billionaires were created with the rapid growth of the city's coal industry over the past decade. The average GDP growth of the city was as high as 18.5 percent in the past five years, and GDP per capita reached $29,500 in 2012, higher than in some developed countries such as Spain and South Korea.
The city's average financial revenue growth in the past five years was 32.5 percent. But in a city government work report released in March, the government set a target of 6 percent for growth of financial revenue this year, the first time in many years that a single-digit financial revenue growth target has been set.
But even single-digit growth may be hard to realize, with major industries caught in a downturn.
In the first half of this year, the city reported financial revenue of 41.18 billion yuan ($6.71 billion), down 9 percent year-on-year.
Coal-driven economy
Coal has been at the heart of the city's stunning economic growth over the last 10 years.
In 2002, the city reported total GDP of 20.4 billion yuan. In 2012, Ordos' GDP had grown nearly 17 times to around 365.7 billion yuan. The coal industry reported total output worth 300 billion yuan last year, accounting for nearly 80 percent of the city's GDP, media reports said.
But amid the slowdown in China's economic growth, the coal industry has suffered from a slide in demand. There has also been increasing competition from cheaper imported coal.
In the first half of this year, Ordossold 270 million tons of coal, 23.2 million less than in the first half of last year. And coal prices have nearly halved to around 280 yuan per ton, the Beijing-based Economic Observer reported on July 7.
Media reports said that given the sluggish market, over 20 percent of the city's coal mines have halted production at present.
The city used to take top position in the autonomous region in terms of GDP growth. But media reports said it may sink to last place in the region this year, thanks to the poor outlook for the coal industry.
The city government is also reportedly burdened with massive debts of around 200 billion yuan, forcing it to borrow from local companies in order to pay salaries in the public sector.
Ordos, a city in North China's Inner Mongolia Autonomous Region, used to be one of the richest cities in the country and was nicknamed "China's Dubai," but its economy is now spiraling downward.
First, the coal industry, a pillar of the city's economy, lost momentum. Then the bubble in the local real estate sector burst. Many buildings in the city are vacant at present, and now Ordos has a new nickname: "the ghost city."
Numerous billionaires were created with the rapid growth of the city's coal industry over the past decade. The average GDP growth of the city was as high as 18.5 percent in the past five years, and GDP per capita reached $29,500 in 2012, higher than in some developed countries such as Spain and South Korea.
The city's average financial revenue growth in the past five years was 32.5 percent. But in a city government work report released in March, the government set a target of 6 percent for growth of financial revenue this year, the first time in many years that a single-digit financial revenue growth target has been set.
But even single-digit growth may be hard to realize, with major industries caught in a downturn.
In the first half of this year, the city reported financial revenue of 41.18 billion yuan ($6.71 billion), down 9 percent year-on-year.
Coal-driven economy
Coal has been at the heart of the city's stunning economic growth over the last 10 years.
In 2002, the city reported total GDP of 20.4 billion yuan. In 2012, Ordos' GDP had grown nearly 17 times to around 365.7 billion yuan. The coal industry reported total output worth 300 billion yuan last year, accounting for nearly 80 percent of the city's GDP, media reports said.
But amid the slowdown in China's economic growth, the coal industry has suffered from a slide in demand. There has also been increasing competition from cheaper imported coal.
In the first half of this year, Ordossold 270 million tons of coal, 23.2 million less than in the first half of last year. And coal prices have nearly halved to around 280 yuan per ton, the Beijing-based Economic Observer reported on July 7.
Media reports said that given the sluggish market, over 20 percent of the city's coal mines have halted production at present.
The city used to take top position in the autonomous region in terms of GDP growth. But media reports said it may sink to last place in the region this year, thanks to the poor outlook for the coal industry.
The city government is also reportedly burdened with massive debts of around 200 billion yuan, forcing it to borrow from local companies in order to pay salaries in the public sector.
Chain reaction
Other key sectors in the city are also faltering.
A large part of the wealth accumulated through the coal industry over the past 10 years has gone to the real estate sector. Money gained from property investment went back into the coal industry or was re-invested in the real estate sector, forming a vicious cycle. So when the local economy cooled, the real estate bubble also burst.
In 2011, property prices in the city reached as high as 20,000 yuan per square meter, but now the average price is around 4,000 to 5,000 yuan per square meter, and many residential projects have been left unfinished.
Without a developed financial system in the city, most capital invested in the real estate sector was from private lending.
But as the economy stopped booming, there has been an increasing number of debt defaults since 2011.
In the first 11 months of 2012, Ordos courts received a total of 10,256 debt default cases in the private lending sector, accounting for over 46 percent of the city's total civil cases, according to a research report released in April by the autonomous region's High People's Court.
The number of cases in 2012 nearly doubled those of 2011, and involved a total capital volume of 4.9 billion yuan, the report said.
The economic crisis has spilled over into other areas, such as the services sector. Media reports said that local restaurants and the retail sector have been hit hard by the city's economic problems.
Transformation needed
Experts said it will be hard for Ordos to pull out of its downturn in 2013, as the coal industry is expected to remain sluggish for some time to come.
In the first quarter, total GDP in the city reached 71.9 billion yuan, up 10.9 percent year-on-year, but with a growth rate 2.3 percentage points lower than in the same period in 2012, according to the city's statistics bureau.
The local government has realized that relying on the resources sector is not sustainable for the local economy, and it is making efforts to push for an industrial transformation.
The city government in 2010 launched a polysilicon project worth 3 billion yuan. However, as the solar industry has also been experiencing a downturn over the past two years, the project is reportedly struggling at present.
Lian Su, mayor of the city, said that to revitalize the economy, the city will extend the industrial chain of the coal industry. Power generation, coal chemicals and aluminum industries will be encouraged in the future, according to a report by Beijing-based China Energy News in March.
Though Lian said that the private sector is also encouraged to help diversify the local economy, the coal industry will remain vital for the city. The local government has a target for local coal production to increase by around 10 percent to 650 million tons this year.
"Ordos boasts very rich natural resources, but the city lacks a well-developed industrial chain… For resource-rich cities, seeking a well-balanced industrial structure is vital," Ma Guangyuan, an economic commentator, told China National Radio in January this year.
Tian Yun, editor-in-chief of Macro China Information Network, told the Global Times Wednesday that "the Ordos development model" of over-reliance on natural resources is not sustainable, and the local government should try to develop other emerging industries.
"It's also a warning to other local governments that real estate should not be the only investment channel, or it will create great risks for the economy," Tian noted.
Other key sectors in the city are also faltering.
A large part of the wealth accumulated through the coal industry over the past 10 years has gone to the real estate sector. Money gained from property investment went back into the coal industry or was re-invested in the real estate sector, forming a vicious cycle. So when the local economy cooled, the real estate bubble also burst.
In 2011, property prices in the city reached as high as 20,000 yuan per square meter, but now the average price is around 4,000 to 5,000 yuan per square meter, and many residential projects have been left unfinished.
Without a developed financial system in the city, most capital invested in the real estate sector was from private lending.
But as the economy stopped booming, there has been an increasing number of debt defaults since 2011.
In the first 11 months of 2012, Ordos courts received a total of 10,256 debt default cases in the private lending sector, accounting for over 46 percent of the city's total civil cases, according to a research report released in April by the autonomous region's High People's Court.
The number of cases in 2012 nearly doubled those of 2011, and involved a total capital volume of 4.9 billion yuan, the report said.
The economic crisis has spilled over into other areas, such as the services sector. Media reports said that local restaurants and the retail sector have been hit hard by the city's economic problems.
Transformation needed
Experts said it will be hard for Ordos to pull out of its downturn in 2013, as the coal industry is expected to remain sluggish for some time to come.
In the first quarter, total GDP in the city reached 71.9 billion yuan, up 10.9 percent year-on-year, but with a growth rate 2.3 percentage points lower than in the same period in 2012, according to the city's statistics bureau.
The local government has realized that relying on the resources sector is not sustainable for the local economy, and it is making efforts to push for an industrial transformation.
The city government in 2010 launched a polysilicon project worth 3 billion yuan. However, as the solar industry has also been experiencing a downturn over the past two years, the project is reportedly struggling at present.
Lian Su, mayor of the city, said that to revitalize the economy, the city will extend the industrial chain of the coal industry. Power generation, coal chemicals and aluminum industries will be encouraged in the future, according to a report by Beijing-based China Energy News in March.
Though Lian said that the private sector is also encouraged to help diversify the local economy, the coal industry will remain vital for the city. The local government has a target for local coal production to increase by around 10 percent to 650 million tons this year.
"Ordos boasts very rich natural resources, but the city lacks a well-developed industrial chain… For resource-rich cities, seeking a well-balanced industrial structure is vital," Ma Guangyuan, an economic commentator, told China National Radio in January this year.
Tian Yun, editor-in-chief of Macro China Information Network, told the Global Times Wednesday that "the Ordos development model" of over-reliance on natural resources is not sustainable, and the local government should try to develop other emerging industries.
"It's also a warning to other local governments that real estate should not be the only investment channel, or it will create great risks for the economy," Tian noted.
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