Last weekend, a ceremony marked the laying of the last beam on the Shanghai Tower, China’s tallest building. The 632-meter building, located in the heart of Shanghai’s financial district, is scheduled to open its doors in 2015.
Little noticed amid the hubbub was the groundbreaking weeks earlier in the city of Changsha of Sky City, a skyscraper that, when completed, will dwarf Shanghai Tower. At 838 meters, it will be the world’s tallest building, overtaking the current No. 1, Dubai’s Burj Tower, which stands 828 meters tall.
These two buildings are part of a Chinese boom in mega-building construction; two other notable structures include a 606-meter building in Wuhan and a 660-meter skyscraper in Shenzhen. The construction crane continues as China’s de facto national bird.
The beam-laying ceremony and the groundbreaking are also notable because of a troubling correlation between the arrival of such architectural giants and economic downturns, a relationship that has earned the name “the skyscraper curse.”
In the United States, the building of the Chrysler and Empire State buildings presaged the Great Depression. Malaysia completed the Petronas Towers just as the Asian Financial Crisis hit its peak, and the Burj Tower marked Dubai’s slide into economic crisis.
Of course, there is no causality. Rather, such buildings reflect the ego and the ambition that marks overheating economies. And right on cue, there is a growing concern about China’s growth prospects, particularly worries that a slowing economy, excessive debt and a fragile banking system could bring about the much-anticipated “China crash.”
China’s economy is slowing to 7.5 percent in the second quarter of 2013, reported China’s National Bureau of Statistics. That is a drop from the double-digit growth recorded for the last three decades — and a slowing still from the 7.7 percent growth recorded in the first quarter of the year — but it aligns with government targets.
The Chinese Communist Party’s Politburo, China’s top leadership body, signaled all was clear when it met last month, and announced that it would continue to press reform programs while promoting stable growth for the rest of the year.
Stability is the key. Everyone concedes China’s growth is unbalanced. The country has relied too heavily on exports for growth, and the result has been relentless expansion of investment, creating overcapacity as demand throughout the world has collapsed. In addition, China’s financial institutions have tried to generate returns by backing real estate projects, creating bubbles in many large cities.
Meanwhile, there are reports that local governments are also overextended, providing backing for many projects that will be unable to pay back their loans.
The central government would like to shift more of the burden of sustained growth from investment to consumption. This is a key pillar of the 12th Five Year Plan adopted in March 2011. While the program overall has proven difficult to implement, there are signs of progress.
In the first half of 2013, growth in output from the services sector (8.3 percent) outpaced growth in the manufacturing and construction industries (7.6 percent).
Policymakers take encouragement as this is not a one-off occurrence, but is part of a year-long trend. The transition is important because services are more labor intensive than the country’s other, more traditional growth sectors.
In other words, an economy that relies on the services sector for growth can afford an overall slowdown without sacrificing job growth. Service industries are also less polluting and less resource dependent, lessening the deleterious impact of China’s more traditional growth.
The Chinese government’s plan to bring 400 million people to cities over the next decade is part of this effort to rebalance the economy. A “human-centered” urbanization program makes sense, but it also risks sustaining pressures that inflated the country’s real estate bubbles.
Affordable low- and medium-income housing will be needed for that flood of people, but developers have historically preferred to focus on the higher end of the market.
The key to balance is control and that is very difficult in any market, but especially so in the overheated Chinese environment. Rumors — and news — have disproportionate impact in a nontransparent economy, and confidence can vanish in an instant.
Fortunately, for all the concern, the Chinese government has extraordinary resources at its command — trillions of dollars of reserves being the most important. Beijing has ample funds to plug any holes that might emerge. If growth slows too much, the government can provide subsidies or public investment plans to simulate demand.
Most critical is a commitment to reform and continuing efforts in that direction so that businesses and investors can plan accordingly.
The Politburo meeting was one indicator and there are high expectations for the third plenum of the party Central Committee, which will be held in October. That meeting will set China’s economic course for the next decade, and they have in the past served as a launchpad for sweeping reforms, such as those introduced by Premier Zhu Rongji in the 1990s.
Of course, there are real risks of over-extension and a crisis. There is no real reason to think China is immune to the mistakes that have been too often elsewhere. Remember those skyscrapers.