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Is China heading for a fall? Just look to the skies

A view of the under-construction Shanghai Tower
STR | AFP | Getty Images
A view of the under-construction Shanghai Tower

China's tallest building, a new landmark which looms high above Shanghai, was meant to symbolize the emergence of modern China. But things have changed since its construction began in 2008.

The placing of the final beam of the Shanghai Tower on Saturday came as Chinese growth hits a rough patch. Economists have cut their forecasts after growth slowed to 7.5 percent year-on-year in the second quarter from 7.7 percent in the first quarter.

One very simple theory could shed light on the outlook for the world's second-biggest economy: the Skyscraper Index.

"When you get too many skyscrapers, it's not the beginning of your cycle; it's kind of the end," Nick Carn, of Carn Macro Advisors told CNBC on Tuesday.

Barclays Capital's Skyscraper Index, which has been published regularly since 1999, shows there has historically been a correlation between construction booms - in particular when there are attempts to break new skyscraper heights - and the start of economic downturns.

(Read more: London's latest skyscraper space is half-booked)

The Skyscraper Index even argues that the higher the tower, the bigger the economic slump that follows. This is not a case of the bigger the better.

The index's claim is not welcome news for China. The Shanghai Tower will become the second-tallest building in the world once completed, its 630 meters surpassed by Dubai's Burj Khalifa, which is 829 meters tall.

However, construction has already started in a field in Changsha in China for a tower called Sky City, which is expected to rise to 838 meters, thus becoming the world's tallest skyscraper.

(Read more: London's New Tallest Building Part of Changing Skyscraper Culture)

The Petronas Twin Towers and the Kuala Lumpur skyline
Getty Images
The Petronas Twin Towers and the Kuala Lumpur skyline

Carn told CNBC, "The world's highest building is not usually a very good sign. The Petronas towers in Malaysia pretty much coincided with the Asian crisis and the big tower in Dubai (Burj Khalifa) coincided with Dubai nearly going bust and having to be bailed out by its neighbor."

Barclays Capital also warned last year that India is hoping to complete 14 skyscrapers between 2012 and 2017, thus indicating that the subcontinent could also be heading for a crash.

And the Barclays Skyscraper Index is backed-up by recent data which showed that manufacturing activity in emerging markets had fallen to a new post-financial crisis low in July as output contracted across, Brazil, Russia, India and China (BRICs) for the first time since March 2009, according to HSBC.

The Skyscraper Index has a long list of examples to back up its findings, with the earliest being the Equitable Life Building, which was completed in 1873 and is considered the world's first skyscraper at 40 meters tall. Its construction coincided with the Long Depression, which began in 1873, and lasted for five years in the U.S. and Europe.

The Great Depression in the 1930s also saw three record-breaking skyscrapers completed: 40 Wall Street in 1929, the Chrysler Building in 1930 and the Empire State Building in 1931.