One of the many under‑populated cities visited in this book is Hallstatt, on the outskirts of Huizhou, in Guangdong province. It is a precise copy of Hallstatt in Upper Austria. “The resemblance to the real Hallstatt went down to the smallest detail … the sounds of birds tweeting were playing throughout the streets from hidden speakers … and The Sound of Music soundtrack played on an endless loop could be heard everywhere.” Wade Shepard was inspired to visit such places after his first, more mundane, sighting of a ghost city. He went to Tianti, in Zhejiang province, by accident getting off a bus at the wrong stop, and found a series of empty high-rises and office blocks so quiet he could hear only the wind and his own breathing. The buildings “all appeared to be crisp and new, inside they were dark cavities, devoid of inhabitants and interior fit-out”.

Many western observers, on coming across these places, have described them as surreal, or like stage sets – Shepard cites various reports, from Al‑Jazeera to internet “10 Crazy Things About China” webpages. They often conclude that China’s property boom is fake, made up in large part of Potemkin cities set up as property boondoggles. As this book makes clear, that is not quite the case. Shepard has written an account of the economic rationale behind the more apparently strange and freakish aspects of the country’s urbanisation; a crash course in how Chinese capitalism, if that’s what it is, actually works.

The first thing to understand is that nobody in China actually owns property. Land is still nationalised, and leases are sold for up to as many as 70 years. That China lacks property, however, doesn’t signify a shortage of property developers. In fact, the “property” market described here sounds as extreme, if not more so, than that of London, with extortionate rents, a paucity of social housing (a pitiful 3% of all construction) and, most of all, the use of apartments and houses as investments – it is normal for middleclass Chinese to borrow their way into owning several unoccupied flats, even if they don’t have one to live in. A version of this practice is now familiar in the UK; who influenced who is an open question.

The second important point is that a “city” in China is not simply an urban built-up area. Rather, it is a legal designation referring to everything that the municipality controls. So a “city” such as Chongqing encompasses 28 million people, of whom only around 4.5 million actually live in the recognisable city itself. Urbanisation is much more lucrative than conserving agricultural land, so the municipalities – perpetually starved of central government funds, as in the UK or US – are eager to build.

Reversing Mao, the result is that “the city surrounds the country”. Premier Li Keqiang has stated his intention to “avoid the typical urban malady where skyscrapers coexist with shanty towns”, but something like this is occurring, as the encircled villages become home to the migrant workers whose labour underpins all this feverish construction. Meanwhile, the rural evictions that turn a “city” into an actual city are often bitterly resisted. One insurgent village was given the almost unprecedented right to freely elect its own council, which quickly realised it would have to flog land to fund its policies – a cruel initiation into the problems of reformist local government.

Although there is widespread corruption, the profits are usually spent on “urban necessities, like social services, education, health care and welfare”. Infrastructure spending is also colossal, particularly on a vast network of metro systems and high-speed trains, in an attempt to wean the newly created middle class from their cars in order to alleviate the drastic pollution. Yet cars, like houses, give their owner (or investor) “face”.

Once built, the newly urbanised area often stays depopulated for a few years, as it is more expensive for investors to properly fit out and let their flats, so they sit on them until – as inevitably happens – the Communist party induces businesses to move to the area, usually by opening a new branch of a university and extending a metro out to each “ghost city”; benefits, such as free transport, low rents or even a couple of years rent-free are offered and are usually effective.

So few places remain ghost cities for long. And if they exemplify a problem, it is rising inequality, rather than a precarious economy. The property bubble is unlikely to burst, as local authorities are merely one (municipal) branch of the Communist party owing money to another (banking) branch, which has no interest in making its comrades bankrupt. Milton Friedman, Shepard notes, saw Pudong, Shanghai’s Central Business District, in its early form as a ghost city, or rather a “statist monument to a dead pharaoh”. It is now one of the most bustling, populated places on Earth.

It is hard to imagine this ever happening to some of the examples in this book, which serves as a fascinating bestiary of apparently whimsical urban planning fixes – the British, Dutch and German-themed suburbs that surround Shanghai, for example, are populated mostly by visitors taking wedding photographs. Their desolation is part of the appeal for their affluent residents – in the “Dutch” district Shepard finds that “these people like their ghost town the way it is”. Other examples include Huaxi, the first of rural China’s communes to be listed on the stock market, and a village which has built itself a skyscraper taller than the Shard (it is a strictly hierarchical society, where the original communards enjoy new cars, villas and free health care, while most of the villagers are migrant workers with barely any rights).

Some of the worst policies are now being phased out, such as investors sitting on unfitted-out flats. The government intends to increase social housing to 25% of construction, but this seems more a response to fear of unrest than worry that the bubble might burst. So far, in fact, its policies have succeeded in creating a capitalist class while leaving the Communist party in control. It is a wasteful approach, for sure, but very its primary functions are the generation of profit and the urbanisation of a recently rural country.

Given the government has the power to make and remake cities, why are the results so sad? Copycat “western” towns, endless Central Business Districts, huge malls; this is urbanisation purely for quantity and profit. Other writers have argued that certain municipalities, such as Chongqing, have managed a more egalitarian state‑driven urbanisation than others, like Guangzhou, but Shepard doesn’t explore the question. Neither does he address the future: once the ghost cities are populated, what next?

• Owen Hatherley’s Landscapes of Communism (Allen Lane) will be published in June.

Ghost Cities of China by Wade Shepard (Zed Books, £14.99). To order a copy for £14.99, go to bookshop.theguardian.com or call 0330 333 6846. Free UK p&p over £10, online orders only. Phone orders min. p&p of £1.99.