CRI听力: Skyscrapers

Over the years a number of intriguing methods have been put forward to measure the health of economies. There was the lipstick index, which is supposed to describe increased sales of cosmetics during economic recessions. There was also the hemline index, which says as financial times improve, women's skirts get shorter. And now there's another that connects building booms with impending financial downturn.
 
CRI's Dominic Swire has the story.




Construction sites like this one in the west of Beijing are popping up everywhere in China as the country appears to be experiencing a building boom. According to investment bank Barclays Capital, over the next six years China will account for almost half of the world's new skyscrapers. But, some say this is not necessarily a good thing.

Andrew Lawrence is Director of Property Research at Barclays Capital. He is the man behind the Skyscraper Index, a report highlighting the link between building booms and financial depression.

"If we look at it from a world's tallest building basis, the 1930s saw three buildings in the US subsequently become one after the other the world's tallest building, between 1929 and 1932. And, in effect, that was the start of the great depression in the US. And then if we look at the 1970s, '72 - '74, we had the World Trade Centre, towers one and two; the Sears Tower completed and we went into a massive oil price rise stagflation, the end of the Bretton Woods system, the US dollar being on gold standard, so we had a significant downturn in world economies."

The current tallest building in the world is the Burj Khalifa.
 
It opened in Dubai at the start of 2010. Around the same time the Middle Eastern city state was struggling to pay off its debts. Barclays Capital's Andrew Lawrence believes this is not a coincidence.

"If we think about it in terms of the macro economic environment and what it says about the macro economy, typically, it's suggesting that banks are perhaps over lending, developers are hugely optimistic, planning departments are hugely optimistic. And the skyscrapers start when credit is effectively very much available in the economy and tend to end when we've moved into a recession, credit has tightened up and developers are en-mass going bankrupt."

The potentially bad news for China is that the real estate sector here is growing fast. Over the next six years the number of skyscrapers here is expected to grow by fifty percent. Here's Andrew Lawrence again.

"So we're seeing a concentrated building boom of skyscrapers in China, which is suggesting that we've got this excess economic environment, too much credit in the market, and therefore the potential that we could see a downturn in the economy in the next 2-5 yrs."

To what extent this report is taken seriously is a matter of debate. Time will only tell whether such warnings ring true, or whether the Chinese economy will prove an exception to the rule.

For CRI, I'm Dominic Swire.