The landscaped lawns and flowering shrubs of Country Garden Holdings Co.’s huge property showroom in southern Malaysia end abruptly at a small wire fence. Beyond, a desert of dirt stretches into the distance, filled with cranes and piling towers that the Chinese developer is using to build a $100 billion city in the sea.

While Chinese home buyers have sent prices soaring from Vancouver to Sydney, in this corner of Southeast Asia it’s China’s developers that are swamping the market, pushing prices lower with a glut of hundreds of thousands of new homes. They’re betting that the city of Johor Bahru, bordering Singapore, will eventually become the next Shenzhen.

“These Chinese players build by the thousands at one go, and they scare the hell out of everybody,” said Siva Shanker, head of investments at Axis-REIT Managers Bhd. and a former president of the Malaysian Institute of Estate Agents. “God only knows who is going to buy all these units, and when it’s completed, the bigger question is, who is going to stay in them?”

The Chinese companies have come to Malaysia as growth in many of their home cities is slowing, forcing some of the world’s biggest builders to look abroad to keep erecting the giant residential complexes that sprouted across China during the boom years. They found a prime spot in this special economic zone, three times the size of Singapore, on the southern tip of the Asian mainland.

The scale of the projects is dizzying. Country Garden’s Forest City, on four artificial islands, will house 700,000 people on an area four times the size of New York’s Central Park. It will have office towers, parks, hotels, shopping malls and an international school, all draped with greenery. Construction began in February and about 8,000 apartments have been sold, the company said.

It’s the biggest of about 60 projects in the Iskandar Malaysia zone around Johor Bahru, known as JB, that could add more than half-a-million homes. The influx has contributed to a drop of almost one-third in the value of residential sales in the state last year, with some developers offering discounts of 20 percent or more. Average resale prices per square foot for high-rise flats in JB fell 10 percent last year, according to property consultant CH Williams Talhar & Wong.

Country Garden, which has partnered with the investment arm of Johor state, launched another waterfront project down the coast in 2013 called Danga Bay, where it has sold all 9,539 apartments. China state-owned Greenland Group is building office towers, apartments and shops on 128 acres in Tebrau, about 20 minutes from the city center. Guangzhou R&F Properties Co. has begun construction on the first phase of Princess Cove, with about 3,000 homes.

Country Garden said in an e-mail it was “optimistic on the outlook of Forest City” because of the region’s growing economy and location next to Singapore. R&F didn’t respond to questions about the effects of so many new units and Greenland declined to comment.

David Fuller's view

Xi Jinping, China’s strongest ruler since Mao Zedong, must be worried about soft GDP growth during the transition from a metal bashing and export-led developing economy to a fully developed consumer-led society.  The consequence is another massive reflationary effort led by the building of more cities.  This will boost Asia Pacific economies and also the global economy.  

What are the implications?

Forget minimal global GDP growth for the next decade, plus more disinflation or deflation.  Leading central bankers have been calling for reflation for some time.  China has obviously been reflating for at least several months and the USA will do the same immediately after Trump becomes President on 20^th January.  Japan is likely to follow this lead. 

The UK has already announced significant spending on roads and also the high-speed rail project (HS2) to the Midlands and North of England. In his Autumn statement tomorrow Chancellor of the Exchequer Philip Hammond will provide over £1 billion to increase broadband speeds.  No doubt we will hear about additional stimulative measures, including tax cuts.

So of the world’s five largest economies, China and the UK are already reflating; we know the USA will commence similar measures in late January, and Japan is likely to follow this lead.  Germany may hold back although the ECB’s Mario Draghi has long called for stimulative measures which would certainly help the EU’s moribund economies.    

This will continue to push bond yields somewhat higher, and some of the money coming out of bonds will be invested in stock markets.  The current Trump rally could easily carry well into 1Q 2017.  Industrial metals and mining shares will remain in form.  The biggest risk to this bullish scenario for the next five or six months is a too strong Dollar Index.