I think anyone who visits Dubai right now is bound to be dumbstruck by the sheer scale of the construction.  It, quite honestly, puts anything I saw in China in early 2005 to shame.   To the naked eye Dubai looks to be building more office space than exists in lower Manhattan -- and Wall Street, despite a bit of competition from the City and Hong Kong, still attracts far more IPOs than Dubai’s new international financial center.  Stephen Roach found the actual data -- and it turns out that Dubai is putting up the equivalent of down downtown Minneapolis in 2007, and downtown San Franscisco in 2008.

Based on industry sources, 26.8 million square feet of office space is expected to come on line in Dubai in 2007, alone -- more than six times the peak rate of completions in Pudong in 1999 and nearly equal to the total stock of 30 million square feet of office space in downtown Minneapolis.  Based on current projections, another 42 million square feet should come on line in Dubai in 2008 -- the equivalent of adding the office space of a downtown San Francisco.  There is one obvious and critically important difference between these two urban development projects: Pudong has an indigenous support base of 1.3 billion Chinese citizens.  Dubai’s current population is 1.3 million.  Throw in the entire native population of the UAE and the support base is still only around 4 million domestic citizens.  That's right, a region with less than 0.5% the population of China is out-building the biggest construction boom in modern Chinese history.

The amount of residential construction is equally staggering.  If you build it, the theory goes, they will come.  The amazing thing: even with so much prospective new supply, rents and property prices are -- last I checked -- still going up.

I consequently fully agree with Stephen Roach's key point: the stereotype of the economically stagnant Gulf is now very, very dated.   Almost as dated as the argument that China doesn’t really have a trade surplus.  The Gulf is not just flush with money – it is now filled with the bustle of loads of new activity.

I don’t buy all the hype coming out of the Gulf though: the arguments about diversification seem a bit overdone.   The Gulf has diversified from pumping oil to pumping oil, refining more of the oil locally and using more of the region's gas to support a petrochemical business.  All that makes a lot of sense, but it is still derivative of the core hydrocarbon business.   And I am not sure that spending oil dollars on construction is real diversification.   If the oil money dries up, so does the construction.