There has been a debate on whether or not the Skyscraper Index, which measure the proclivity of record breaking buildings and the GDP cycle, can accurately predict a bubble cycle is much debated. The most recent study has indicated that the announcement of super tall skyscrapers do not correlate with the on coming of an economic collapse, however, the growth rate of GDP does correlate with the height of announced sky scraper projects. In other words, while the skyscraper index alone cannot indicate whether or not an economy is on the cusp of a crisis, the tallest skyscrapers are started during the height of the economic boom/bubble cycle. The announcement of record breaking buildings will not necessarily indicate that we are about to enter an economic crisis, but the announcement of those skyscrapers do indicate that the economy is very 'hot'.
This is particularly relevant to China, as the majority of buildings over 152 meters, around 500 feet, are within their territory. The Mises institute interviews Mark DeWeaver on what this means for the future of the Chinese economy. Needless to say, there is very little likelihood that the Chinese will come out of the situation they now find themselves unscathed. Real Estate, especially large scale commercial construction, is an interesting beast as that they are risky projects but very rarely do they yield the extremely high profits that you would expect for projects of that size. Of course there are numerous other advantages to large scale real estate properties, depreciation of the asset for tax purposes, a well managed building will have reliable cash flows, and having a tangible physical asset that can be managed versus other securities like hedge funds and stocks, and managing a 300 million dollar facility isn't as complicated as running a 300 million dollar company; though that isn't to say that it isn't uncomplicated.
The one major downside to real estate, and many other type of large scale fixed investment that the Chinese government has done, is that it is hard to liquidate. You can liquidate bonds and stocks fairly easily. Company assets are a little harder, but you can find buyers. Real estate you need to find one buyer for the entire property, it is very hard, though not impossible, to divest a property in separate parcels to separate buyers. When real estate goes bad, it goes very bad. It's expensive to build, expensive to sell, even expensive to demolish. That is perhaps the greatest mistake the Chinese made. The Chinese municipalities have converted large swaths of their arable land into skyscrapers, roads or even entire new cities. Even if the Chinese leaders wanted, allowing those converted lands to re purpose back towards their originally use would be a costly and time laden affair.
In many ways this is understandable. The Chinese are poor, they don't want to be poor, and state investment is seen as the quickest way for the Chinese to not be poor. They also have the unfortunate situation where the majority of their arable land is also the same land with the majority of their people. The issue is that they are in a catch twenty two situation. They can destroy their much needed arable land to increase their urbanization, and hypothetically increase their standard of living, or they slow the pass of their urbanization, which would decrease their growth, and face the possibility of unrest. There is also the third option the Chinese have opted fore, foster urbanization in the far out territories, Ordos is such an example, but the success of those efforts have been largely underwhelming.
As DeWeaver said in his interview, the only conceivable way out for the Chinese that has had a history of working, is intolerable to the government. Real liberalization will cause social unrest as it would force an economic crisis on the economy, since market forces would begin the purge of the malinvestment, and the Chinese government doesn't want to face unrest as that could mean the end on the one party stranglehold on power. Continuing on the current course is the most likely route where the communist party maintains control, however, that is also the route which means an even larger economic crisis, and the corresponding social unrest, in the future.