Fears for China economy as property goes sky high

As British and American bankers waive their 2009 bonuses in an attempt to win public favour - Lloyds chief executive Eric Daniels being the latest - and currency traders predict a sustained drop on concern over EU member deficits, there are repeated warnings over the condition of the Chinese economy.

Specifically, there are new concerns that a Chinese property bubble is ready to burst.

On Monday, the significant Hong Kong developer Sun Hung Kai agreed to pay US$434 million - $175 million over the reserve
- for a 130,000 sq ft site in the suburbs. Across Hong Kong, prices for luxury apartments rose 50 per cent last year. Over the same period in China, property values have jumped by a quarter.

The People's Bank of China is introducing measures later this week requiring banks to hold more cash, a new and popular way of curbing excessive lending.

Emblematic of the Chinese boom is Huaxi. In the 1970s it was all bamboo huts and ox carts. Today it's home to 30,000 residents who boast of a per-capita income four times the national average. Huaxi claims it is China's richest village and plans a 1,760 metre skyscraper second only to Dubai's Burj Khalifa in height.

Marc Faber, publisher of the Gloom, Boom & Doom Report, suggests this is evidence of a dangerous over-reach: it makes no sense for China to build more capacity where there is already over-capacity. "I think the Chinese economy will decelerate very substantially in 2010 and could even crash," he says.

Meanwhile Singapore's government is trying to "temper sentiments and pre-empt a property bubble" by imposing a tax on anyone flipping properties within a year of purchasing and capping mortgages at 80 per cent of a property's value.

And back in Hong Kong, the government says it is prepared to adjust land policies if necessary. "Hong Kong property buyers have been in a prolonged low-interest-rate environment, and now they're behaving like drunken drivers on the road - they don't think about consequences," says Nicole Wong, a property analyst.

The Chinese government has placed curbs on lending to force the stock market down, but many say it's not enough. Hedge fund manager Jim Chanos says China is Dubai times a thousand. Marc Faber says that if the Chinese economy crashes it will lead to a "disastrous environment" for commodities. George Soros said last month: "The Chinese market is overheating." ·