Does China’s Dubai Project Flop Signify as Signs of the Skyscraper Curse?

More signs of the China’s imploding property bubble. 

From the AFP (including above photo)

It was billed as China's Dubai: a cluster of sail-shaped skyscrapers on a man-made island surrounded by tropical sea, the epitome of an unprecedented property boom that transformed skylines across the country.

But prices on Phoenix Island, off the palm-tree lined streets of the resort city of Sanya, have plummeted in recent months, exposing the hidden fragilities of China's growing but sometimes unbalanced economy.

A "seven star" hotel is under construction on the wave-lapped oval, which the provincial tourism authority proclaims as a "fierce competitor" for the title of "eighth wonder of the modern world".

But the island stands quiet aside from a few orange-jacketed cleaning staff, with undisturbed seaside swimming pools reflecting rows of pristine white towers, and a row of Porsches one of the few signs of habitation.

Chinese manufacturers once snapped up its luxury apartments, but with profits falling as a result of the global downturn many owners need to offload properties urgently and raise cash to repay business loans, estate agents said.

Now apartments on Phoenix Island which reached the dizzying heights of 150,000 yuan per square metre ($2,200 per square foot) in 2010 are on offer for just 70,000 yuan, said Sun Zhe, a local estate agent.

Majestic, grand or ostentatious real estate projects usually highlight the peak of business or bubble cycles. Such has been called as the “Skyscraper curse” as I pointed out in 2009. The rest of Asia, including ASEAN has also been exhibiting the same symptoms

The Skyscraper curse or Skyscraper syndrome, notes Austrian economics Professor Mark Thornton signifies as the “salient marker of the twentieth-century’s business cycle; the reoccurring pattern of entrepreneurial error that takes place in the boom phase that is later revealed during the bust phase.”

It is unclear if China’s Dubai episode has merely been a localized problem.

Instead I would see this as signs of the bursting of her internal bubbles occurring at the periphery which may be in the process of spreading to the core, as explained this weekend.

So far, recent government interventions such as stealth fiscal stimulus and monetary easing has only deferred on the day of reckoning or managed to kick the can down the road.

Yet despite such political actions, China’s retail sales reported rose at the smallest pace in 4 years, and February posted a slump in manufacturing.

Again as noted this weekend, last week China moved to withdraw some of the recent fund injections, as well as, imposed new restrictions on property sales, that may have rattled China’s stock market aside from global commodity markets.

It remains to be seen if China’s political authorities would have the gumption to allow markets to clear that would come with significant economic anguish that may translate to heightened socio-political risks for the incumbent leaders.

My bet is that once the slowdown will become evident anew, policymakers will be quick to reverse on any tightening recently made and flood the system with money. Such has been the du jour policy convention.