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More China Warning Signs: Skyscraper Shenanigans

SkyscraperOne of my favorite indicators of a bubble is the “Skyscraper Index.” Barclays (BCS) put together a great list of super-high buildings that were built as status symbols … and reached completion just in time for the decadent economies that built them to crumble around them.

If you believe too-tall buildings are a sign of a too-entitled economy, then China seems to be right on track to mark the end of its economic dominance with Sky City. Upon completion, it will be the world’s new tallest building. It will measure 2,749 ft.

But what goes up must come down.

Think this is all just silliness? Well take a look at some past record-breaking skyscrapers and their timing:

  • Amid the Great Depression, New York saw three new records in skyscraper height: 40 Wall Street in 1929; The Chrysler Building in 1930 and the Empire State Building in 1931.
  • The twin towers of the World Trade Center were completed in 1973, and the Sears Tower in Chicago was completed in 1974 … just in time for stagflation and expensive crude.
  • Emerging markets got into the act around the turn of the century. The Petronas Towers of Kuala Lumpur in 1997 were “followed by a region-wide economic crisis and the collapse of Asian currencies,” according to Barclays.
  • Taipei 101 started in 1999, just in time for the tech bubble to burst and gut tech-heavy Taiwan businesses. The impact even delayed completion until 2004.
  • The current global financial crisis coincided nicely with the 2007 completion of the current-record holder, the Burj Khalifa in Dubai.

Who knows how long China’s economy can stay in high-growth mode now that cracks have started to appear in this emerging market’s economic might. And heck, who knows how long Sky City will stay on top given the world’s propensity for topping records.

But if you’re looking for signs of a China bubble, the Skyscraper Index is as good a proxy as any for a reason to be wary. The go-go days that lead to bigger buildings as status symbols and massive spending on lavish projects typically do not last.

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Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.

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