China’s City in the Sky

Yesterday we left off with the question of whether China’s current leadership will repeat the mistakes of the past. At stake is how to urbanise 400 million Chinese without blowing up China’s economy. Today we have the answer: build a city in the sky.

A company named Broad Sustainable Construction (BSC) will break ground next month in Changsha China. It aims to build the world’s tallest building. At 838 metres, it will be ten metres taller than the world’s current tallest building, the Burj Khalifa in Dubai. But the height is the least ambitious aspect of this building.

Broad sustainable construction wants to put an entire city in one building. It’s a vision of what it calls efficient, affordable, and replicable urban planning. You’ll have 30,000 people living in one single structure. It will look something like the artists impression below.

Source: Broad Sustainable Construction
It’s conventional wisdom that tall buildings usually go up at the height of a speculative boom. They stand as monuments to credit excess, or as giant tombstones to wasted capital. China would have to have a tremendous credit boom for the Sky City to become the concrete example of excess. But as we mentioned yesterday, the National Development and Reform Commission is exploring a ten-year, $6.5 trillion urbanisation plan. That certainly qualifies as a tremendous credit boom.

Our friend Phil Anderson was asked about this when he recorded his ‘Remembering the Future’ presentation in March. Phil took what you’d call a contrary view of conventional wisdom. He said tall buildings tend to open up during a recession. But they have to be seen not as harbingers of depression, rather, they’re signs that the boom in land prices and commodities is sustainable.

He was answering a question that didn’t make it into the final cut. But we went back to the original footage this morning and watched the ten minute exchange again. Phil spoke about the convergence of technological trends with long-term business and property cycles. He began with a quote from WD Gann’s 45 Years in Wall Street.

In 1949 Gann wrote that, ‘During the past history of the world, following each depression, some new discovery or some new invention has stimulated business and progress and brought about another boom.’ Phil reckons there have been at least three such cycles of innovation since Gann wrote that in 1949.

What’s more, he reckons new technology and new energy breakthroughs will be part of the next boom. He referred to the shale gas boom in the US, saying, ‘It’s going to prodigiously lower costs to the extent that manufacturing is actually going back to the United States…in my view, it will bring another huge boom…The next cycle could be very productive, with enormous wealth created and quite a substantial boom.’

It’s certainly a provocative view, especially for the contingent of committed bears here in our Albert Park headquarters. But what we love about Phil’s work is that he brings an analysis of long-term cycles into his economic forecasting. The conclusions are controversial. But you can’t doubt the quality of the research. Stay tuned for more later this week.

Your editor is inclined to be sympathetic to the claim that cheaper and more abundant energy can generate another boom. It would begin with an investment boom in a second wave of liquefied natural gas projects. Martin Ferguson, the former Minister for Resources, mentioned it in his retirement speech yesterday in Australia’s parliament.

Ferguson is the most sensible and least sociopathic Australian politician we’ve heard speak. Yesterday was a fine example of his clear thinking and honest feeling. He said:

‘On my watch as Minister for Resources, I am proud to have helped facilitate the biggest pipeline of investment in our resources sector this country has ever seen.

‘Perhaps more importantly, if we focus our attention on the fundamentals of attracting investment, including getting costs under control and achieving regulatory reform, we have the capacity to secure a second pipeline of investment, especially in the LNG sector, which will set Australia up for the 21st century…

‘I think it’s fair to say many try to demonise the resources industry, but we should not forget that it accounts for 60 per cent of our export wealth – wealth that has meant we can take better care of our community, improve the lives of Australians and give opportunities to those who never thought that they could do the things they now do in that sector.’

But not everyone agrees that the US shale boom is revolutionary, sustainable, and replicable in Australia. Oil trader Andy Hall reckons the surge in US oil and gas production is temporary. He says the decline rates on shale wells are precipitous. He’s siding with OPEC in the energy war and betting on higher oil prices.

Hall wrote a note to investors saying, ‘The shale oil and gas boom has been an incredible phenomenon and it would be ridiculous to argue that it is not having a transformational impact on the oil and gas industry…We feel that some of the wilder claims regarding its future prospects need to be tempered.’

But even if Hall is right about tempering some of the enthusiasm about the shale revolution, it’s not necessarily bad news for energy investors. Shale gas is driving big geopolitical trends right now. One of those trends is finding oil and gas in non-OPEC countries. Your editor is working on that story today and tomorrow for the latest monthly edition of The Denning Report.

Dan Denning
for Markets and Money

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From the Archives…

How a Slowing Chinese Economy is About to Hand Australia a Pay-Cut
24-05-13 – Greg Canavan

Your Forefathers’ Pain Can Be Your Gain
23-05-13 – Vern Gowdie

The Fatal Flaw at the Heart of Modern Economics
22-05-13 ­– Bill Bonner

The Warning Signs for Australia’s Economy
21-05-13 – Greg Canavan

A Simple Interpretation on Gold for Times of Monetary Madness
20-05-13 – Greg Canavan

Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.

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