China has been on a skyscraper-building boom for years, but, we suspect, 2016 may have seen the mal-investment boom jump the shark.
As Goldman Sachs illustrates in the following chart, China was head, shoulders, knees, and toes above the aggregate of the rest of the world in terms of skyscraper completions in 2016…
Could record-setting skyscrapers signal economic over-expansion and a misallocation of capital?
EWN Interactive, a subscription service focused on technical analysis, thinks so. The following infographic follows the “Skyscraper Curse” through six different market tops and subsequent crashes over the past century.
It is gigantic in size, so please click here or the below image to access the legible version:
EWM Interactive sums up the infographic with these words:
In the market, extreme optimism results in price bubbles. One of the real-life manifestations of extremely positive social mood is the construction of enormous buildings. Market tops and skyscrapers often seem to emerge simultaneously, because both phenomena are the result of the illusion of infinite prosperity.
But extreme psychological conditions do not last very long. That is the reason why record-breaking buildings, whose construction starts during a market bubble, are often completed after the bubble’s collapse.
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In January we noted a perfect example of the smoke-and-mirror-ness of China’s credit-fueled expansion, as a 27-storey high-rise building which was completed on November 15th 2015 was just demolished, “having been left unused for too long.”
And just this week, another illustration of Keynesian perfection as China created, then destroyed 19 massive structures, to make room for an even bigger skyscraper. The epic explosion that took place in Wuhan, the capital city of Hubei province, leveled 19 seven to 12-story structures in a controlled demolition, the South China Morning Post newspaper reported, citing local media. The city authorities are planning to demolish at least 32 buildings to make way for a new business center that will reportedly feature a 707-meter tall skyscraper, which is to be one of the tallest buildings in the world.
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The silver-lining – now workers can clean up the mess, dig a bigger hole… and fill that in – all in the name of Keynesian “growth.”