Is China's Race to Build the World's Tallest Building a Bad Omen?

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The sky's the limit these days.

People communicate with one another via Skype. No new football stadium is complete without the construction of pricey skyboxes. James Bond revisits his ancestral home in the hit movie Skyfall. And so on.

China - awash in trade-surplus profits after decades of communist austerity - is a country where the outrageous has become commonplace. Thus it is no surprise that human habitation there is also reaching for the sky.

And how. Whatever else may be said of that country, the Chinese have never been accused of thinking small, as you can see in the plans for Changsha's new Sky City.

sky city

That's right. The Chinese are endeavoring to erect the tallest building in the world - leapfrogging Dubai's gaudy 2,719-foot Burj Khalifa by 30 feet - and to do it in 90 days!

That's over 2.4 floors per day, for those keeping score - a pace that's all but incomprehensible. (For comparison purposes, the Empire State Building, with a labor force of 3,000, went up at the rate of 4.5 floors per week.)

It sounds like a hoax. Yet the Broad Sustainable Building Group, a company that has built 20 super-tall structures in China so far, is dead serious. Pending final government approvals, foundations are due to start pouring before the end of the year. The building is expected to be fully finished by March of 2013.

The specs are mind boggling: the building's 220 floors will require setting in place 220,000 tons of steel. The final product will constitute a self-contained small city that's 83% residential, housing 31,400 people in both "high and low income communities," the company says. The other 17% will contain offices, schools, hospitals, shops, and restaurants, and 104 high-speed elevators to whisk the inhabitants from here to there. Don't worry about forgetting your American Express card; you'll never leave home without it, because you'll literally never have to leave home. (Whether people will jump at the chance to spend their entire lives enclosed in a glass cocoon is another question.)

Broad Group proposes to bring construction expenses in at $1,500 per square meter, a stunning figure compared with Burj Khalifa, which cost ten times as much and, because of the lofty spire at the top, features a mere 163 habitable floors. (The Empire State Building, counterintuitively, actually cost less. Because of the Depression, it was completed for only $1,450/sq. meter in 2012 dollars.)

One might be skeptical, were the company new to this game. It's not. Sky City construction will employ the same techniques used for a 30-story, 183,000-square-foot hotel that was successfully erected in Hunan Province in 2011 in a stunning 360 hours. That structure is designed to withstand a 9.0-magnitude earthquake (five times better than conventional buildings) and be fire resistant for "up to three hours." It is also five times more energy efficient than conventional buildings, with 6-inch thick glass curtain wall insulation; four-paned windows with built-in shades; a heat recovery system; and a three-stage filtration air-conditioning process that purifies indoor air (monitored on a room-by-room basis) to be 20 times cleaner than the air outside - no small selling point in a country where air quality is a serious problem. Sky City will be very simila r.

Of course, the jump from 30 stories to 220 will undoubtedly involve its own sets of challenges. But when this company says it'll do something, it seems to do it.

There are a couple of things to ponder here.

First is the technology.

Modular construction is hardly new. Everyone in the US is familiar with the sight of half a home crawling down the highway on a flatbed truck. A lot of time and money can be saved by creating standardized modules off-site in a dedicated factory, then delivering them ready to be dropped onto a concrete slab.

When building very large and repetitive structures like office complexes and apartment buildings, this benefit is amplified. The Chinese have simply pushed this concept to the extreme by applying it to skyscrapers that are assembled like giant Lego creations.

However, the scale also means that errors in the parts would stack as well, potentially turning a few inches of variance on each floor into being off by feet at the top and risking the building's stability. Unlike a doublewide, where all you have to do is fit the two halves together, these modules have to line up perfectly, floor after floor. When you're going up thousands of feet, there's no margin for error, and Broad Group in fact claims that its modules are machined to a +/- 0.2mm precision in the fabrication process. That's apparently good enough; the hotel, at least, is still standing.

So shouldn't everyone build high rises this way? Well, yes and no. In the US, we certainly have the capability. The technical expertise goes without saying and, with the application of modern robotics, setting up a manufacturing facility to turn out modules fast and cost-effectively should be simple enough... even without the kind of government support the Chinese company surely receives.

For that to happen, though, the manufacturer would have to be convinced that there's sufficient demand - present and future - to make it worth the necessary capital investment. Thus, we've seen that kind of automation in everything from pre-manufactured roof trusses to modular homes in the US housing market. However, with a lot of excess inventory in the housing and commercial markets, low population growth, low comparative population density, and only a slow trickle of residents into dense urban areas, investing in the capacity to build multiple high rises very quickly in the US makes little economic sense today. In order for mass manufacturing to work, you need continual demand for the product over many years to pay all those fixed costs for tooling up in the beginning - something the rapidly modernizing China still has ahead of it, as its population continues to move from agrarian to urbanized at a steady clip.

Even if the situation in the United States were more conducive to this building style, it remains to be seen if we'd be able to do so without stiff political headwinds, rather than the unabashed state support Sky City is offered. The construction business in the US remains highly unionized, and the various trade unions are not likely to look kindly on any changes that translate into fewer positions available for both skilled and unskilled workers. (The recent bankruptcy of Hostess - where, for example, the Teamsters required Twinkies and Wonder Bread always to be delivered on separate trucks - provides an instructive lesson on the stifling restrictions that can be imposed by modern unions.) There is, however, no fighting a technological advance, as we've seen with everything from textiles to mainframes.

More intriguing, though, is the second takeaway from the Sky City story, which has to do with China's economy.

Economist Mark Thornton of the Ludwig von Mises Institute has a provocative and possibly relevant theory, which he wrote up in a paper entitled Skyscrapers and Business Cycles, which was published in the Quarterly Journal of Austrian Economics.

In essence, Thornton argues that the building of great skyscrapers tends to occur at times of what is now generally known - since Greenspan coined the term - as "irrational exuberance." These structures are expressions of boundless optimism within a given economy. Thornton cites the work of fellow economist Andrew Lawrence, who in 1999 created the "Skyscraper Index," an attempt to correlate the building of skyscrapers to economic performance in subsequent years. According to Thornton, "Lawrence described his index as an 'unhealthy 100 year correlation'." And he "showed that in almost all cases the initiation of construction of a new record-breaking skyscraper preceded major financial corrections and turmoil in economic institutions."

Well, it's certainly not counterintuitive. What more logical time to embark on great construction projects than when the business cycle is at its peak and a bubble has reached maximum inflation? That's the point where citizens swell with hubris and truly believe that the glory days will roll on forever. And that could easily describe China today.

We have no idea if the "skyscraper effect" is a true indicator or nothing more than coincidental. But we have to admit that it just might be meaningful that Sky City arrives at a time when many observers are questioning the sustainability of China's super growth curve, and outsiders are documenting the country's ghost cities and malls. Perhaps Sky City, like the Burj Khalifa before it, is destined to stand mostly empty for a good long while.

While there is no way to directly invest in the marvelous new technology that will permit a Chinese building to reach the sky in 90 days - nor would we advocate doing so given the fundamentals of the project - there is no doubt that automated manufacturing will have a profound impact on the way everything from single-family homes to giant skyscrapers are built going forward. Proponents of additive manufacturing - i.e., 3D printing - have already shown proofs of concept that build cement structures autonomously, in virtually any shape imaginable.

Ambitious projects like Sky City will pave the way technologically for the further disruption of the business of building for many years to come, as they absorb the high fixed costs of innovation in one of the world's largest industries.

Many of the world's other major industries are already facing the kind of technological revolutions that promise to forever change and disrupt their businesses today. Google now sells more advertising than all national magazines and newspapers combined, for example. The Pentagon is deploying thousands of small robots across land and sea to fight battles, sniff for bombs, and assist soldiers. Tablet computers now outsell laptops each month, and there are now more smartphones on the planet than traditional computers. All of these shifts are creating phenomenal opportunities, and big new risks, for investors. Get on the right side of the technological curve with the exclusive investment guidance in Big Tech - available for a limited time at 33% off for charter members.


Bits & Bytes

Programmed Swarm Behavior (Wired)

Coordinated swarm behavior, such as we see in birds and insects, has long fascinated computer scientists, who wonder if the same phenomenon might be reproducible in robots. Now, researchers at Georgia Tech have had some rudimentary success. Tiny bots playing Beethoven may seem innocuous enough, but this just might be the first step down a perilous road, toward the world envisioned in Daniel Suarez's novel, Kill Decision, where swarms of small drones are programmed to obliterate whatever's in their way.

Up, Up, and Away (Daily Mail)

We've heard of life imitating art before, but this seems plain crazy. Adventurer Jonathan Trappe has been experimenting with a real-life re-creation of the Pixar film, Up. Yep, he's managed to lift a house - simulating the one in the animated film - off of the ground, using a hundred multicolored balloons. He's already flown from England to Belgium under his balloon cluster, and his next goal is- gulp! - a trans-Atlantic crossing involving balloons and a boat. There's even a crowdfunding website where you can help sponsor the project.

3D Printer Magic

Finally, there are several marvelous 3D-printing stories this week. First, on a serious note, researchers at Wake Forest University have published a proof of concept showing the feasibility of printing human cartilage. Then, was anyone else who saw the new James Bond flick, Skyfall, as horrified as I was when they exploded that beautiful, vintage Aston Martin? Well, we can relax. The thing they blew up wasn't the original 1960 car that appeared in the very first Bond movie - just a perfect 3D-printed replica. And in an even lighter vein yet, note that the first 3D printing photobooth is due to open in Japan any day now.

Source: Casey Research

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