AMPONTAN

Japan from the inside out

The sky’s the limit

Posted by ampontan on Friday, May 25, 2012

EARLIER this week, Japanese politicos filled their Twitter litter boxes with tweets of chirping delight about their VIP preview visit to the Tokyo Skytree, which opened to the public on Tuesday. Now the world’s largest tower, Skytree will be used for television and radio broadcasts. As with the tower it replaces — the Tokyo Tower — it is also expected to become a tourist destination and a symbol of the city.

The Christian Science Monitor and others, however, couple the news with the observation that building projects of this immensity might also be an indicator of impending economic decline. It’s based on a theory called the Skyscraper Index, and they explain it this way:

The skyscraper index works because developers tend to make ambitious gambles with huge new towers at the point of the business cycle when interest-rate and price signals can get distorted, wrote Mark Thornton, a senior fellow at the Mises Institute, in a 2005 research paper.

On the Mises Institute website, Mr. Thornton adds:

It is a broadcasting and observation tower and so it does not qualify as a skyscraper and therefore it does not signal a global economic crisis. However, with regional records being set in the Pacific Rim, China, India, and Europe, as well as a new world record skyscraper in development in Saudi Arabia, it reinforces the warning signals from the Skyscraper Index.

Here’s the Wikipedia explanation, which in this case is acceptable as something other than a collection of links. When Mr. Thornton refers to skyscraper development in China, he’s talking about the developments described in this article, which contains the following quote:

Investors should therefore pay particular attention to China – today’s biggest bubble builder with 53% of all the world’s skyscrapers under construction…

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.

For a more visually arresting and concentrated report on the Chinese high-rise boom, try this video report from Reuters. (I wanted to embed the video, but couldn’t figure out how to appease the cranky WordPress software.) This is not your average uptick in construction activity.

That would explain the data points on this chart of cement consumption from Goldman Sachs via ZeroHedge:

*****

George Gershwin composed the theme music for this manic erection of phallic cement and steel long ago — little more than a year into the Great Depression. His working title was Rhapsody in Rivets, suggesting his inspiration was the skyscrapers sprouting in the rocky soil of Manhattan during the Roaring 20s. The final title was the Second Rhapsody.

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