A Chinese company wants to build the world’s tallest skyscraper. As a result, there has been a lot of discussion about the “skyscraper index.” Does the groundbreaking on Sky City mean that the Chinese economy is about collapse? Is the world economy at risk?
Maybe. It could. I am on-record as a medium-term China bear. But that is really not what Sky City means. No, the real meaning of Sky City is the same as the meaning of the locks on the Panama Canal expansion: China’s manufacturing model has reached its limits.
What do the Panama Canal expansion locks have to do with Chinese manufacturing. Well, below you can see a video of the Panama locks being loaded onto the ships that will take them to Panama; they should arrive next month.
You got it: the locks are being built in Italy. Not China. In fact, very little of the equipment for the expansion is coming from China. Engineers on the project told me that Chinese work was cheaper, but they judged it too shoddy and unreliable.
And ... the developers of the Sky City project refuse to use Chinese steel because it is not safe. They will get the steel from Luxembourg instead. (I bet few readers knew that Luxembourg is a historic center of steel production.)
The upshot is that something is broken at the heart of China’s manufacturing model, at least as it concerns high-performance large-scale capital goods. If nothing else, Sky City exemplifies that concern.