Bubble fear grows after Dubai crisis

08:16, December 03, 2009

Anxiety over Dubai's debt crisis may be easing on Wall Street and bourses throughout the world, but it's just starting to swell in China, as some analysts say the nation's economy is similarly dependent on booming real estate and infrastructure.

Dubai has fallen about $80 billion in the red, primarily from Dubai World, a state-run property conglomerate that accounts for about $59 billion of the debt, much of it from its real estate developer, Nakheel, creator of the Palm Islands. Dubai World plans to postpone repayments for at least six months.

It helped ease fears with plans to renegotiate several billion dollars worth of obligations, but not entirely.

Analysts and economists are split over whether today's Dubai foreshadows tomorrow's China. Some are attempting to ease fears on the growth while others warn of dire consequences if action isn't taken now.

"As China's real estate bubble continues to grow in size, a crisis similar to that in Dubai is likely to take place in China, and the impact could be much more devas-tating," warned Yi Xianrong, a researcher at the Institute of Finance and Banking at the Chinese Academy of Social Science.

"The shocking news sets off a big alarm in China – that any economy that's excessively reli-ant on real estate will collapse like Dubai," said Shi Hanbing, director of Shanghai Security News'' opinion desk and a popular financial commentator, who was relaying opinions of Huang Weiping, an economist at Renmin University of China.

According to statistics from the central bank, Chinese banks have lent 6.21 trillion yuan ($909 billion) to the real estate sectors. The figure would be larger if private financing were taken into account.

"Chinese scholars believe that the local government's debt will be more than 13 trillion yuan," Shi said. "This does not include the debt of the State government."

Together with the government's 4-trillion-yuan stimulus package, "China will become a country with the craziest infrastructure investment, which would almost certainly result in huge amounts of bad loans, like what happened in the 1990s," Shi said.

"The US housing market collapsed because of trying to boost its economy with real estate; Japan''s housing sector also collapsed for the same reason. China will have the same fate if it relies upon real estate development," Shi again quoted Professor Huang as saying.

The roaring market has been sounding alarms to Premier Wen Jiabao, who called during his visit to Shanghai on Sunday for the containment of speculative purchases of homes and for the promotion of healthy development of the real estate industry.

"We should give priority to the construction of affordable houses and provide extensive financial, fiscal and land support," he said.

Source:Global Times