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Economy

Inner Mongolia is the new Outer Mongolia

Condominiums are left unfinished in the city of Ordos, Inner Mongolia.

The city of Ordos is considered a ghost town. Now, the Inner Mongolia Autonomous Region city is hoping reducing its dependence on coal reserves can help it recover.

     Unfinished condominiums and houses are everywhere in the Kangbashi New Area, an urban center built by clearing the prairie. The landscape of Ordos, where people kept goats and used the fur to make clothing, drastically changed about a decade ago.

     Ordos accounts for about one-sixth of China's coal reserves. The city rose as the national economy grew. Shenhua Group and other state-run and private companies flocked to Ordos and got rich developing mines to meet ballooning resource demand.

     The local government, which benefited from increased tax revenue, also pushed forward with infrastructure investment. "Real estate prices kept going up," said a Chinese newspaper reporter. "Coal and realty investors looking to resell holdings quickly came to Ordos from across the nation." Then came the downturn.

Supply glut

A 4 trillion yuan (around $585 billion at the time) economic stimulus package Beijing mapped out after the 2008 collapse of Lehman Brothers Holdings triggered tough times. Every industry -- from steel to autos to home appliances -- suffered from excess production. By the end of 2011, coal prices were heading south. "Condo builders and buyers ran away," said a local taxi driver who goes by the name Zhang.

     Ordos used to see an annual economic growth rate of more than 20%. The rate dropped to 8% in the January to September period. The city's revenue this year sank into negative territory.

     Resource and real estate bubbles are having an impact beyond Ordos. Many of China's cities away from the coast face the consequences of economic distortions created by years of rapid growth. President Xi Jinping, in part to tackle such distortions, has moved the country from a rapid growth model to one that is more sustainable.

     The government has said it will cut public spending even amid a slowing economy. U.S. ratings agency Moody's Investors Service projects that Chinese local government debts that mature next year will amount to 2.8 trillion yuan ($450 billion).

     Government officials in Ordos have set a goal of departing from dependence on coal and are working to attract auto and liquid-crystal panel factories. Non-coal industries accounted for 41.6% of the city's total in the January-November period, up 6.4 percentage points from a year earlier. City officials draw hope from the data.

     "The inventory of houses can be eliminated in two to three years," a local government official told a local newspaper in September.

     Rebuilding Ordos will require broadening the range of industries operating there and generating jobs. Whether or not the city can tackle these issues will offer clues as to the direction of China's national economy.

(Nikkei)

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