Inspired by Dubai? China and the 'skyscraper curse'
It is perplexing that the so-called ‘skyscraper curse’ seems to be at work again as a record-busting Chinese structure seeks to rise above the rest.
Proponents of the curse believe that each time someone somewhere builds a tower taller than the existing tallest, it is an omen pointing to an impending crisis. We know this was true with Burj Khalifa, the construction of which coincided with the worst financial crisis of our times. (It is a different matter that in hindsight the move turned out to raise Dubai’s global profile.)
We know how people have associated the Asian financial crisis of the 1990s with Kuala Lumpur’s Petronas Towers, a celebrated landmark until it was overshadowed by other structures, including the Taipei Stock Exchange tower that made higher claims to fame.
The Empire State Building in New York, which has remained in memory for generations as the world’s tallest, was built during the Great Depression. Similarly, New York’s World Trade Centre and the Sears Towers in Chicago have been linked to periods of economic turmoil.
The curse theorists argue that such projects are typically the result of a combination of one-upmanship and the availability of easy money, which indicates a systemic problem. When an economy suffers irrationalities, it invariably plays out in the form of a crisis, and the projects just happen to be symbols of over-indulgence. That apart, the contribution of a project itself to the culmination of the economic problem may be minimal.
The Sky City that the Chinese are building in Changsha is more ambitious. The developers plan to finish the structure that would surpass Burj Khalifa’s height at half the cost of the Dubai landmark and at reckless speed: Sky City has been rising by an incredible two floors a day.
Everything about Sky City is awe-inspiring, but the economic setting against which it is coming up has raised serious concerns. In spite of desperate government moves to regulate prices and unsustainable expansions, overheating has thrown the property market out of gear, triggering the collapse of several developers. According to latest reports, over $30 billion worth of financing raised for construction will be due for repayment next year and there is widespread speculation that payment defaults are going to be the order.
It is feared that such an eventuality can cause a washout similar to the subprime crisis in the US, and snowballing into a full-blown crisis for the Chinese economy. This will have a major bearing on global finance and the economy. Another shock at this juncture will have implications.
Just as in the case of subprime lending, a kind of shadow banking has been rampant in China, in which trust companies and asset management firms promote products to help developers tie up finances. According to CBRE in China, defaults on shadow banking borrowings are set to spread, exposing the vulnerabilities of small and medium developers. With limited access to bank lending and debt markets, these developers are seen to pose a major threat to the stability of the sector and the economy.
The Chinese property market has many similarities to Dubai’s post-boom scenario. With property prices falling in most cities, several small and medium developers have folded up, setting into motion a chain of defaults. According to JP Morgan Chase, the real estate industry poses the biggest near-term risk to growth in the Chinese economy as home prices record the biggest fall in the last two years.
It remains to be seen how well the Chinese deal with the crisis, but the believers of the skyscraper curse have a major addition to their armoury.
— The writer is a journalist based in Dubai