China's sinking cities; Skyscraper Index for China

First it was ghost cities, now it is sinking cities. Chinese are now concerned that their cities are sinking due to a rapid depletion of groundwater.

Report: Land under 50-plus Cities Is Sinking
Some cities have already recognized the need to limit groundwater exploration. Ever since Tianjin began to reduce its groundwater consumption in 1985, the city's land has sunk by 20 millimeters annually, down from 80 millimeters, the five year plan said.

Shanghai's soil has been sinking as early as 1921. In 1965, the city sunk by 11 centimeters. Beijing is also at risk with 2,815 square meters sinking having sunk by more than 100 millimeters in recent years. In 2009, a 1.85-centimeter ditch suddenly appeared near Beijing's Chang'an Street.
Cities Sinking Due to Excessive Pumping of Groundwater
The cities of Shanghai, Tianjin and Taiyuan report the worst sinking, each of them having dropped by more than two metres since the early 1900s.

Meanwhile, the rate of groundwater pumping in the country has been increasing by 2.5 billion cubic metres annually during the last 20 years, according to Zhang Zonghu, a professor with the China Academy of Sciences.

Groundwater accounted for 19.8 per cent of the national water supply in 2000 as compared with 14 per cent in 1980, Zhang said. The percentage for cities in the dry northern and northwestern regions now stands at 72 and 66 per cent, respectively.
This article is long and gives a history of water issues in Shanghai, for those interested.

These stories came in Chinese first, it's not just the international media finding a convenient metaphor for the Chinese economy: giant skyscrapers built on a weak foundation. Below are photos from 组图:北京上海等多地出现地面塌陷, showing sink holes from Beijing, Shanghai, Hangzhou and other cities.

In the context of social mood, this shows the anxiety felt by Chinese worried about falling home prices and a weakening economy. That doesn't mean there aren't still pockets of optimism and hubris: Chinese Tower May Add Floors to Be Tallest After Burj Khalifa
Shanghai Greenland Group said it may add more floors to China's second-tallest building under construction to turn it into the highest in the world after the Burj Khalifa in Dubai.

The closely held company set up in 1992 may increase the height of Greenland Center in the central city of Wuhan to 636 meters (2,086-foot) from 606 meters, said Wang Xiaodong, Greenland's Shanghai-based spokesman. That will dwarf the 632- meter Shanghai Tower also scheduled to be completed in 2014.
The tower would be the largest in China outside of Shanghai without the addition, but with it, it becomes China's tallest and the world's second tallest buildings. Does Wuhan need that much space?
"There has always been fierce competition among cities in China to attract greater investment and record faster economic growth," James MacDonald, head of China research for Savills Property Services (Shanghai) Co., said in an e-mail. "While it's hard to compete with Shanghai in terms of economic might or attraction for foreign investment, it's a lot easier to compete in individual construction projects."

Shanghai-based, government-controlled Greenland, which has properties in 43 Chinese cities across 22 provinces, has built skyscrapers in the country's less affluent second- and third- tier cities. That includes a 450-meter tower in the eastern city of Nanjing and a 518-meter Greenland Center under construction in the northeastern city of Dalian.

The new skyscrapers will help local governments in China draw publicity and status, especially for cities in central or western parts of the country, MacDonald said.
This reminds me of the 442 meter Sears Tower in Chicago, completed in 1973 and which remained the world's tallest building until 1998. The rise of Malaysia's Petronas Towers knocked it from the top spot and there's been rapid lead changes ever since, but the 830 meter Burj Khalifa has no challengers at the moment.

Skyscraper Index
The Skyscraper Index is a concept put forward in January 1999[1] by Andrew Lawrence, research director at Dresdner Kleinwort Wasserstein,[2] which showed that the world's tallest buildings have risen on the eve of economic downturns.[3] Business cycles and skyscraper construction correlate[4] in such a way that investment in skyscrapers peaks when cyclical growth is exhausted and the economy is ready for recession.[5]
The buildings may actually be completed after the onset of the recession or later, when another business cycle pulls the economy up, or even cancelled.[5] Unlike earlier instances of similar reasoning ("height is a barometer of boom"[6]), Lawrence used skyscraper projects as a predictor of economic crisis, not boom.
The wikipedia entry goes on to discuss a test of the theory, but it focused on GDP, not stock prices or social mood. Other critics noted no buildings in the 1930s or early 1980s recessions, but these were periods of negative social mood, not a time when people would be reaching for the skies.

I believe the Skyscraper Index is a useful indicator of peak social mood, but it must reach an extreme level. The three lead changes from 1998 (which came at the time of the Asian Crisis), to the Taipei 101, to the Burj Khalifa (started in 2004, completed in 2010) appears similar to the early 1970s competition between New York and Chicago. To have a clear signal, there should be a flurry of activity or a massive increase in size. In this case, there does appear to be a signal that China's real estate market has topped. The stock market peaked in 2009 and the economy only performed so well due to massive money printing and fiscal stimulus.

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