Dubai shows fragility of dreams built on bubbles

BEIJING, Dec. 1 -- "Dreams are not limited. You should keep on moving." The well-known quote from the Emir of Dubai Sheikh Mohammed, posted on Dubai's Sheikh Zayed Road, has inspired people and nations worldwide to dream big and realize their dreams.

But a dream built on bubbles is doomed to burst, sooner or later, as has happened in Dubai.

Late last week, stock markets across the world plunged as investors hit the panic button on the news that the government-controlled holding company Dubai World could default on its debt of 59 billion U.S. dollars.

As Wall Street and Asian stock markets are regaining lost ground this week, observers see the Dubai debt crisis as a warning about the fragility of an unsustainable growth model, and not as a trigger for fresh financial turmoil.

The warning should, without further delay, provoke deeper thinking on China's overheating real estate market. A report released on the day the Dubai crisis erupted shows that housing prices in Beijing, Shanghai and other metropolises have hit a record high since the financial crisis. And the first 10 months of 2009 saw an 18.9 percent rise in real estate investment.

Though often regarded as one of the pillar industries to pull China out of its economic slump, China's real estate market, unfortunately, shares a distressing similarity with the Dubai model.

As for Dubai, the factors that took Dubai swiftly to great success are precisely the ones that recoiled as the crisis. The skyrocketing growth of certain sectors to the neglect of the overall economy, over-development of high-end luxury projects, and euphoria, as seen in the case of Dubai, can have a frightening flip side.

As for China, hardly surprising then that speculation has increased the risks and put its real estate market in jeopardy. While New York developers may be threatened by a 10 to 15 percent vacancy rate in downtown Manhattan, developers keep building skyscrapers in Shanghai, even with a vacancy rate as high as 50 percent in Pudong.

With property prices at an all-time high and beyond the reach of most people, it is safe to say that market bubbles in China, too, may be on the brink of bursting.

If China's real estate sector is to be brought down to earth and not allowed to go the way of Dubai, there must be a major effort at structural adjustments to China's economy.

As decided at a meeting of the Political Bureau of the CPC Central Committee Friday, China will continue its stimulus packages next year, and take a more sustainable growth path by restructuring the economy on a more healthy and consumption-driven track.

Dubai World's corporate philosophy claimed "strong fundamentals, best ethical practices and integrity," but its dream was built on a fragile base, which lead to the crisis.

The correct conclusion to be drawn from Dubai is that only on "strong fundamentals" can China's dream of sustainable prosperity come true.