Country Garden’s Forest City high end project symbolises China’s real estate crisis, on the Malacca strait. Too big to fail, Malaysia’s government is coming to the rescue.
Sebastien Falletti, in Johor Bahru (Malaysia).
The 35-storey towers rise above the equatorial forest, like a concrete rampart overhanging the coconut palms camouflaging the deserted beach. The balconies are overflowing with lush vegetation, giving the impression of Babylon's hanging gardens overlooking the Straits of Malacca. On the horizon, heavy container ships pass silently by, like miniature automatons. At the foot of the tallest skyscraper in the complex, a groom dressed all in white and wearing a red livery greets the rare visitors with a jovial smile. "Welcome to Forest City! Over 50,000 people already live here," says joyfully the tanned man. A vertiginous watchtower of glass and steel with rounded lines, dominating one of the world's most strategic shipping lanes.
"Have you found anyone to talk to? " asks Fariz, a Singaporean who has come to visit the complex with his wife, looking for an affordable mail box in Malaysia. This " smart city of the future" is a "beautiful place to live", proclaims a sign at the entrance to the gigantic translucent lobby protecting the commercial space of the pharaonic project by Country Garden, the Chinese developer in peril. The new town, which aims to accommodate 700,000 inhabitants by 2035, by offering top-of-the-range condominiums, is deserted. Only 15% of the project has broken ground since it was launched in 2016, giving the site the appearance of a forgotten ghost town in a heavenly setting.
Green oasis
An imposing scale model reveals the scale of this $100 billion "green oasis", which was intended as a high-end showcase for President Xi Jinping's China's "New Silk Roads" in the heart of South-East Asia. More than 20 square kilometres built on four artificial islands at the southern tip of Malaysia, challenging nearby Singapore, visible to the naked eye just 2 km away across the Straits of Johor. The bridge to Asia's financial hub is a 20-minute bus ride away.
In the aisles of the shopping centre, the iron curtains are down on most shop fronts, with the exception of a few restaurants and a CIMB bank. Inside, an employee is sleeping with her face pressed against a cushion on the counter. She wakes up with a start: " Excuse me! We don't get many customers. There are a few locals here, mostly Chinese and a few Japanese and Koreans ", yawns the young woman covered in an Islamic veil. A rare Chinese family is looking after their little daughter in a remote-controlled car zig-zagging through the deserted aisles. The few passers-by are visitors who have come to explore this strange urban cathedral, which recently became the setting for a successful Netflix series in Malaysia. "We're doing urban decay tourism," grumbles Andy (nickname), a young Singaporean on an excursion. " I've always dreamt of visiting a ghost town. It's a dystopian atmosphere, " enthuses the young man.
4,500 km from Beijing, Forest City symbolises the woes of the Chinese property market, which has been caught up in a brutal crisis since the pandemic that has permanently undermined growth in the world's second-largest economy. Its developer, Country Garden, is dangerously following in the footsteps of the Evergrande behemoth, which went into liquidation in January, crushed by a mountain of debt estimated at 300 billion dollars. " Property is the real cause of the Chinese slowdown," explains Dan Wang, an economist at Heng Sang Bank in Shanghai. And it signals the end of the credit-driven mirage that drove China's take-off until the last decade.
300 billion in debt
Forest City was supposed to sell a top-of-the-range tropical dream to middle classes looking for diversification and investment beyond the Great Wall, beyond the reach of the Party's clutches. Against all the odds, Country Garden claims that its Malaysian projects are " operating normally and recording solid sales ". However, the clock is ticking for the bulimic Guangdong developer, which has already sunk 4.3 billion dollars into construction. The family-owned group is on the verge of bankruptcy and was forced to suspend its listing on the Hong Kong stock exchange in April as it attempts to restructure its colossal debts, estimated at nearly 200 billion dollars. Threatened with bankruptcy, the group is " actively exploring all options to restructure its debts with its offshore creditors ", according to a press release dated 24 June, in search of respite.
Stone accounts for around a quarter of China's GDP growth, and the slump in the sector looms large over the Chinese Communist Party's Plenum, which opens in Beijing on 15 July to discuss economic strategy and find a remedy for a sluggish economy. This conclave of the entire Central Committee is being watched by desperate investors hoping for measures to support a sector that is crucial to curbing the Asian giant's deflationary spiral.
The Red caciques are caught between the urgent need to clean up the books and the obsession with social stability, fearing a cascade of bankruptcies and the anger of families who have invested most of their savings in concrete towers. According to the Bruegel think tank, households have invested 80% of their savings in property. Are the giant developers " too big to fail ", as Wall Street put it during the 2008 financial crisis? The question haunts the empty condominiums of Forest City and the opaque corridors of Zhonghannai, the residence of Communist leaders on the outskirts of the Forbidden City.
At Forest City, the sales department continues to put on a show, albeit with little conviction. " There are already 10,000 people living here. You don't see them because they're in their flats," explains Charlotte Zhao, sales manager. The figures keep fluctuating depending on who you talk to, like a badly crafted lie. "The next tranche is already sold out ", says the young Chinese woman laconically, pointing to the shoddy towers with the "sold out" sticker on the model. And the parent company's setbacks are brushed aside with a wave of the hand. Better still, there is talk of an imminent relaunch of the project. "These difficulties have no impact on Forest City because we are a separate company supported by the Malaysian government. There will be big announcements soon ," assures Zhao. Country Garden holds a 60% stake in the joint venture, entered into with the wealthy Sultan of Johor, Ibrahim Iskandar, sharing the risks with the ambitious local monarch who has just been propelled to the head of the Malaysian monarchy.
This 'Royal' partnership offers Forest City precious respite from the pack of creditors. These artificial islands, emblematic of the overweening ambitions of the wealthy sultan who dreams of being as close as Singapore, which belonged to his dynasty before British colonisation, cannot sink or the royal image will be tarnished. The empty complex continues to be meticulously tended by an army of gardeners, selflessly pruning the frangipani trees, a sign of the owners' determination to save their stakes.
Gardeners continue to maintain Forest City's green spaces. Aparna Nori / Bloomberg
Geopolitical pendulum swinging back
The geopolitical pendulum is swinging back in their favour, as relations between non-aligned Malaysia and Beijing warm against a backdrop of growing Sino-American rivalry in the region. Chinese Premier Li Qiang paid a state visit to "KL" in June, giving a boost to the silted-up " one belt, one road" infrastructure projects, turning the page on the friction of the Mohammed Mahathir government. In 2018, the mad nationalist from Malaysia rejected China's ambitions, in particular its railway project on the east coast of the peninsula, which was deemed exorbitant and essentially in the interests of the Asian giant. At a time when the Gaza crisis has triggered boycotts in Malaysia, Prime Minister Ibrahim Anwar is once again playing the Chinese card, firing arrows at the West.
It's another step in two, as Beijing adjusts its charm offensive towards South-East Asia, to thwart the " American encirclement ", returning in force to the strategic peninsula. "Malaysia is one of China's priority partners because of its non-alignment with the West. The Silk Roads are moving away from major infrastructures towards more targeted projects. Beijing is calling on its companies to expand abroad ", says Chen Gang, a researcher at the National University of Singapore (NUS), heralding a new wave of Chinese investment.
The accession of the Sultan of Johor to the supreme throne in Kuala Lumpur offers Country Garden leverage to mobilise central government to the rescue. Prime Minister Anwar declared Forest City a " new special financial zone " last August, and promised concrete measures to revive the silted-up project. Already, a meeting of ASEAN tourism ministers has been scheduled at the complex for early 2025, as part of Malaysia's presidency of the regional organisation. There is even a rumour that a casino will be opened, but Anwar quickly denies this, as Islamists are on the lookout. The ghost town has not finished arousing fantasies.
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