China's Super-Skylines of Doom?

In a recent blog post, Brian Wang described a new mass-production method for building skyscrapers more quickly and efficiently that has been developed in China. China was already rapidly boosting the number of high-rises in its cities, even before this development. Now it seems likely that skyscrapers will be rising above Chinese cities more rapidly than ever. Is this a good thing for China, or does it portend the approach of an economic collapse for the celestial kingdom?

Amid the ongoing bubble watch in China’s real-estate sector, new research Wednesday showed the mainland is home to more than half of the world’s skyscrapers currently under construction.

Barclays Capital said that China is now flashing some of the telltale signs of a bubble on its Skyscraper Index, which is designed to track the correlation between tall buildings and an impending financial crisis.

Slightly over half of the 124 skyscrapers due to be completed in the next six years are in China, according to Barclays, which cited its own in-house research and website Skyscrapernews.

The construction binge will increase the number of skyscrapers in Chinese cities by 87% the report said, noting that the average height of buildings under construction is also increasing.

Barclays analysts said the frenzied activity in these lesser-known cities amounted to “evidence of the expanding building bubble,” adding that its Skyscraper index has acted as barometer of widespread misallocation of capital that can see instances of excesses dating back to before the Great Depression. _Marketwatch

Barclay's suggests that an economic collapse could occur in China as early as 5 years from now, if the past performance of "the skyscraper index" is any guide.

Here is more on the skyscraper index of doom from an article published on Al Fin almost one year ago:

Chinese government officials believe high-rises "show their progress in terms of urbanization and modernism," spur wider development by boosting investor confidence, and symbolize "a city's desire to become modern and international," says Chiow, a Chinese-American based in China for the past 15 years. _USAToday_via_ImpactLab

Lawrence showed that in almost all cases the initiation of construction of a new record-breaking skyscraper preceded major financial corrections and turmoil in economic institutions. Generally, the skyscraper project is announced and construction is begun during the late phase of the boom in the business cycle; when the economy is growing and unemployment is low. This is then followed by a sharp downturn in financial markets, economic recession or depression, and significant increases in unemployment. The skyscraper is then completed during the early phase of the economic correction, unless that correction was revealed early enough to delay or scrap plans for construction. For example, the Chrysler Building in New York was conceived and designed in 1928 and the groundbreaking ceremony was conducted on September 19, 1928. "Black Tuesday" occurred on October 29, 1929, marking the beginning of the Great Depression. Opening ceremonies for the Chrysler Building occurred on May 28, 1930, making it the tallest building in the world. _Mises

Table 1: World's Tallest Buildings

Completed	Building	Location	Height	Stories	Economic Crisis
1908	Singer	New York	612 ft.	48	Panic of 1907
1909	Metropolitan Life	New York	700 ft.	50	Panic of 1907
1912	Woolworth	New York	792 ft.	57	——
1929	40 Wall Street	New York	927 ft.	71	Great Depression
1930	Chrysler	New York	1,046 ft.	77	Great Depression
1931	Empire State	New York	1,250 ft.	102	Great Depression
1972/73	World Trade Center	New York	1,368 ft.	110	1970s stagflation
1974	Sears Tower	Chicago	1,450 ft.	110	1970s stagflation
1997	Petronas Tower	Kuala Lumpur	1,483 ft.	88	East Asian
2012	Shanghai	Shanghai	1,509 ft.	94	China?

If large buildings are constructed due to high utilisation and strong demand for space, they can be very profitable over their lifetimes. But if a skyscraper is constructed as a symbol or monument to the "greatness of a nation's political structure," the building may remain the empty prayer of a cargo cult.

China is building 44% of the 50 skyscrapers to be completed worldwide in the next six years, increasing the number of skyscrapers in Chinese cities by over 50%, says Andrew Lawrence, an Asian property analyst at investment bank Barclays Capital.

China is already host to six of the 15 tallest, completed buildings in the world, according to the Council on Tall Buildings and Urban Habitat, at the Illinois Institute of Technology in Chicago.

..."The appetite in China for high-rises, in the last five years and the next five, is bigger than ever before in the history of building," says Silas Chiow, China director for Skidmore, Owings and Merrill, the U.S. architectural firm, founded in Chicago, responsible for the Burj Khalifa.

The firm is currently engaged in 50 China projects, including the tallest buildings in eight separate cities.

Chinese government officials believe high-rises "show their progress in terms of urbanization and modernism," spur wider development by boosting investor confidence, and symbolize "a city's desire to become modern and international," says Chiow, a Chinese-American based in China for the past 15 years. _USAToday_via_ImpactLab

China is already full of "ghost cities," "ghost housing projects," "ghost office complexes," and "ghost shopping malls."

There is no denying the huge number of people living in China -- many of whom could use better and larger living and working space. But the economic structure of Communist Chinese society is rife with the mal-allocation of resources and enterprise. Corruption permeates the culture, driving much of the "road to nowhere" construction frenzy. Too much of the GDP-inflating construction is of a shoddy nature -- certain to collapse far sooner than projected lifetimes suggest.

Will the "Skyscraper Index" prove prophetic for Potemkin China of the cargo cult, or will the middle kingdom defy the curse of the world's tallest buildings?

More on skyscraper index:
From Mises.org
From CNN here and here

China's empty skyscrapers and office buildings

Amazing satellite images of some of China's ghost cities

World's loneliest shopping mall

More: And just in case you are still thinking that China may be ready to lead the world, perhaps you should think again:

We hear constantly how China's economy has "leapfrogged" other nations and now ranks third in the world — still behind the U.S. — with a total GDP of $3.3 trillion. The truth is more complex.

China has 1.3 billion people. So you're spreading that economy among one-sixth of the world's humanity. As the chart shows, China's economy on a per-person basis — the real measure of success — doesn't even come close to ours. The average American produces over $42,000 a year in goods and services; the average Chinese produces $2,800. That's an enormous gap in productivity.

Moreover, in its recent rankings of economic freedom, the Heritage Foundation put China 135th out of 179 countries. The U.S., even with all its current problems, ranks ninth. Who's the leader?

Citizens in big cities such as Beijing and Shanghai live a privileged existence, well-documented by the Western media. Deep inside rural China, however, hundreds of millions live in near-absolute poverty. This isn't a country ready for global economic leadership.

China's economic success has been driven by mercantilist policy of beggaring its own people in the interest of building up massive trade surpluses. Its foreign currency holdings now total $2.9 trillion, and most of that is in U.S. Treasuries and other dollar-denominated assets. That's China's hole-card in talks with the U.S. _IBD

End of Al Fin article from Jan 2011

China's ongoing construction boom may be evidence of an economic bubble getting ready to burst. Or it may be possible that China is wealthy enough to be able to afford this massive misallocation of resources into an "infrastructure to nowhere," and not pay a significant price. Time will tell.

China's Version of Disneyland: Ghost Amusement Park

All Images via Atlantic
China is full of ghost shopping malls, ghost office buildings -- even entire ghost cities in the middle of nowhere. But perhaps the spookiest Chinese ghost property of all, is the ghost "Disneyland," begun in 1998, and crumbling away ever since in a wasteland.

Construction on Wonderland began in 1998 with the intention of building the largest amusement park in Asia. The project was scrapped after funding was withdrawn and the developers and the local farmers could not come to terms over ownership of the land. This past year, UK-based photographer Catherine Hyland braved the harsh land to capture the crumbling park, which has been reclaimed by nearby villagers who regularly tend to the grounds.

Hyland’s images reveal a strange landscape of half-built structures amid corn fields and cracked pavement. The park is strewn with fragments of anachronistic landmarks, anchored by an unfinished fairytale castle whose inchoate construction dissolves into the smog. Had it all been completed, Wonderland may have rivaled Disneyland, with undoubtedly larger crowds and plenty of in the way of spectacle but few genuinely new experiences. In its ruinous state, however, it offers something much more rare but infinitely more interesting. _Atlantic

Interesting? In a morbid way, perhaps. Certainly an excellent example of top-down planning and central command economics.

Wonderland from catherine Hyland on Vimeo.

China to Russia: Who's the Bitch Now?

Mirnaya was once a thriving garrison town with a movie theater, a kindergarten and a park. The Soviet army maintained a base here to keep an eye on neighboring China. Then the Soviet Union collapsed and the military left. To survive, those who stayed behind gradually dismantled and sold off what was left, piece by piece. First they removed the windows from the prefabricated buildings where the officers had once lived and sold them in Chita. Then they ripped radiators and pipes from the walls and sold them to scrap dealers, who then sold the metal in China. The buildings now stand like skeletons in the steppes, evidence of a ruined country. _Spiegel

Spiegel
China's border gate is to the left, above, and Russia's is to the right. A load of Russian lumber is moving into China. A lot of raw materials and natural resources have been moving from Russia into China, recently, where the Chinese turn the materials into finished products to sell at a significant markup.

The main thing going into Russia from China is Chinese settlers and investors, building Chinese colonies and outposts inside the very heart of Russia's source of wealth and economic power.

The border between the fallen superpower Russia and the People's Republic, which is gradually becoming a superpower, measures 3,645 kilometers, one of the longest borders in the world. And perhaps this border, where Europe's last offshoots encounter 1.3 billion Chinese, and where Christianity collides with Buddhism and Confucianism, is also one of the most important in the power struggles of the new century.

...Siberia, which covers three-quarters of the landmass of Russia, is home to only a quarter of the country's population: 38 million people. This is the equivalent of the population of Poland, except that Siberia is 40 times the size. It is a situation that many fear could once again spark the eternal rivalry between Russia and China, a rivalry that last produced military clashes in the 1960s.

Chinese investors have already bought a former tank factory in Chita, where they are now producing trucks. They already control the markets in Russian border towns, where they are the richest private business owners. "China invests more in the Russian Far East than our own government does," writes the Moscow newspaper Niezawisimaja Gazieta.

...Years ago Dmitry Rogozin, Russia's eloquent NATO ambassador, said half-jokingly that the Chinese would soon be "crossing the border in small groups of five million." And Vladimir Putin, shortly after being elected president, warned: "Unless we make a serious effort, the Russians in the border regions will have to speak Chinese, Japanese and Korean in a few decades." This hardly seems an exaggeration, given that there are six million Russians living in Eastern Siberia, compared with the 90 million living in China's northern provinces.

...Russian tourists heading to China to buy inexpensive goods are forced to wait up to 12 hours in their cars. These people, who work for distributors and are popularly known as "silk worms" or "camels," travel to China several times a month to bring goods to Russia: jeans and blouses, electric shavers and children's toys, athletic shoes made by a low-wage manufacturer called "Adidos" and chainsaws labeled "Stihl." They are pirated products, and are manufactured in southern China.

... the Chinese aren't just interested in Russian lumber. They also want Russian oil. Some 1,300 kilometers farther to the east, past empty steppes where a driver is likely to encounter no more than three cars an hour, is the small city of Skovorodino. It is the terminal point of the most expensive infrastructure project in the new Russia, a "pipeline with geopolitical significance," as Prime Minister Putin raves.

... _Spiegel