Ordos and Detroit – A tale of two cities and two economies

The problems of Detroit and Ordos tell us much about the differences between the US and Chinese economies

This week bought news that that two cities, one in China and one in the US, had fallen into deep financial trouble.

While the bankruptcy of Detroit is very different to the developers of the Ordos new city failing, there is a strange symmetry between the two stories.

Detroit is the biggest US city ever to enter bankruptcy with an estimated $20 billion in debts, dwarfing the previous record of Alabama’s Jefferson Country’s $4 billion default in 2011.

The fall of Detroit wasn’t unexpected as the New York Times tells.

Detroit expanded at a stunning rate in the first half of the 20th century with the arrival of the automobile industry, and then shrank away in recent decades at a similarly remarkable pace. A city of 1.8 million in 1950, it is now home to 700,000 people, as well as to tens of thousands of abandoned buildings, vacant lots and unlit streets.

Like most industrial hubs, Detroit grew became the centre of the US motor industry due to geographic and commercial advantages along with a few historical accidents but as the economy changed, the city’s importance faded.

It’s sad for the people of Detroit but it isn’t the first industrial hub to fade away; Ironbridge, once the cradle of the English industrial revolution, is today an open air museum and a charming rural spot.

Ordos on the other hand is an example of 21st Century government planning with the Inner Mongolian provincial leaders building the city of the basis of build it and they will come.

They haven’t.

The collapse of Ordos is going to be an interesting test of the Chinese economic model. Many of the country’s local and provincial governments – like Australia’s – have become dependent on the revenues from property sales. Now the market is  drying up, local councils are having trouble paying their bills as Bloomberg reports.

Some Ordos district governments had to borrow money from companies to pay municipal employees’ salaries, Economy & Nation Weekly, published by the official Xinhua News Agency, said in a July 5 report on its website.

So while Detroit illustrates the stresses in the US system, so too does Ordos tell us about the problems facing Chinese governments.

The tale of these two cities also shows the difference between the US’ industrialisation of the early Twentieth Century and today’s economic development in the PRC and reminds why the results of ‘Capitalism With Chinese Characteristics’ may be very different to the modern American consumerist economy.

For Detroit, at least there’s good news as one US city manages to works its way out of bankruptcy. For the developers of Ordos though, things must be looking very grim.

Ordos image courtesy of Bert van Dijk through Flickr.

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