21 November 2012

Towers, Intermittent Power, and Africa: China Doubles Down

Ground-breaking for a new "world's tallest sky-scraper" is expected to take place in Changsha, Hunan Province, China -- sometime before Christmas of this year. China is going ahead with this building despite the "skyscraper of doom" economic curse that has often befallen the builders of the "world's tallest skyscraper."

Despite a significant economic slowdown and ongoing banking crisis, China continues to invest in an overbuild of real estate construction, green intermittent energy production, and an expansive land-grab of third world resources -- particularly in Africa.

Foundation work is to begin at the end of the month once the Chinese authorities give the final go ahead to the project.

According to the construction company BROAD Sustainable Building (BSB), the skyscraper will be erected at the rate of five floors per day thanks to a prefabricated modular technology. _World's Tallest Building in 90 Days
The building is to be 220 stories tall, topping out at 838 metres.

Bad loan investments in overcapacity over multiple sectors typify the current phase of Chinese development. The installment of a new generation of corrupt princeling leaders is not likely to change current trends -- despite imminent warnings of economic weakness in the middle kingdom.
"You sometimes have to wonder why a certain loan was made," said Stanley Li, head of China bank research at Mirae Asset Management. "One problem with many Chinese banks is that we do not have much insight into their lending practices."

...A Reuters News analysis on 40 of China's most indebted companies - most of them from sectors already reeling with overcapacity such as wind-turbine maker Xinjiang Goldwind Science & Technology Co Ltd (002202.SZ) and COSCO Shipping Co Ltd (600428.SS) - showed debt levels rising as profits decline across industries that Beijing has said it wants to promote.

On average, operating profit at these companies dropped 15 percent in 2011 as their debt piles grew by the same percentage, according to company and Thomson Reuters data. _China Banks Questionable
Over-investment in real estate and in companies that produce intermittent unreliable sources of energy, is likely to come back to haunt Chinese banks and local governments that took part in the unwise debt practises.

China has even exported this tendency to overbuild in unprofitable sectors to Africa, where Chinese built "luxury ghost cities" have already started to pop up -- priced well outside the incomes of locals.

Many African nations look at the new influx of Chinese capital and infrastructure projects as a type of salvation from themselves, as it were. Unfortunately, the future of Africa will not be redeemed by outsiders -- particularly not the Chinese.
...in less than three generations, 41% of the world's youth will be African; by 2035, Africa's labour force will be larger than China's, by 2050, over 1/4 of the world's labour force will be African. _Africa's Youth
China has a good relationship with virtually all African dictators, including Mugabe of Zimbabwe and the bloody-handed Omar al-Bashir of Sudan. China makes no pretense of its true purpose in China -- to do whatever it takes to extract the resources, and no more. When China takes what it wants, then walks away, all of Africa's problems will still be in place. And getting worse.

Unfortunately for China, its investments in commodities are not always based upon a realistic assessment of real trends in global markets and needs. The same type of misallocation and malinvestment that is so common inside of China, is also common in China's outside investments.

Enemies of China might want to encourage the dragon to over-invest and over-build, doubling down on popular but increasingly unprofitable sectors. More ghost cities, ghost towers, green ghost energy infrastructure, and ghost overseas empires in the jungles and the sand. And all of that without reforming its corrupt governments, banks, and state-owned enterprises.

Watch and see.

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