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Submitted by McKinsey on
While various reasons may be used to explain the emergence of these “ghost cities” across China, the fundamental reason, from a macroeconomic perspective, is lack of appropriate investment channels in China. For those who are familiar with the Chinese economy and the investment climate, it is not difficult to understand that the economic developed is mostly fuelled by investment and fixed asset investment is probably the only suitable way for Chinese investors to achieve asset value appreciation. Local government in China, indeed is the major investor at subnational level. Mayors are under the pressure of achieving high GDP growth and have strong incentive to invest in urban development projects. This is the primary drive of ghost town formation.