Sunday, February 12, 2012

Paging Mark Thornton: The China Skyscraper Boom

As regular EPJ readers know, I am very bearish on the Chinese economy. It does not therefore surprise me that there is a boom in skyscrapers in China. There tends to be a growth in skyscrapers construction during the boom cycle because money flows into the construction center.

According to the latest Barclay's Skyscraper Index report:
China will complete 53% of the 124 skyscrapers under construction over the next six years, expanding the number of skyscrapers in Chinese cities by a staggering 87%. China’s skyscrapers are not only increasing in number – it now has 75 completed skyscrapers above 240m in height – but the average height of the skyscrapers that it is building is also increasing as past liquidity fuels the construction boom.
 

Here's Mark Thornton on skyscrapers and the business cycle:




Skyscrapers aren't in themselves an indication of a problem economy, but if the skyscrapers are being built when heavy money printing is taking place it is a signal that trouble is going to develop down the road

Further,  the skyscraper boom can continue as long as more central bank created money is being pumped into the construction sector, but once that money slows, the bust follows. In China, the money printing hasn't stopped, but it has slowed big time. The crash is developing.

2 comments:

  1. Those who don't understand monetary theory can at least see the madness with their own eyes.

    I think of it as the "bigness" factor.

    During the stock market bubble, it was crazy mega-mergers like AOL/Time Warner. During the real estate bubble, it was mega-highrises in places like Miami & multi-billion dollar casinos in AC & Vegas. Even in my neighborhood real estate agents were building huge houses for themselves.

    Cheap credit mixed with testosterone & giant egos.

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  2. Robert, I feel as though you are under appreciating China's savings and production. Obviously China's central planning will cause many problems, but I don't think the problems will be as large as ours and not nearly as long(assuming they get off the dollar).

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