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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.
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 similar.
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%
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