Dubai debt meltdown has limited influence on China

13:37, December 01, 2009

Shored up by optimism in China's economic outlook, China's major Shanghai stock index climbed 3.2 percent Monday as investors' nervousness over Dubai debt meltdown was also fading, analysts said.

"The Dubai debt crisis will have limited influence on China as the country's enterprises have little exposure to the United Arab Emirate," said Zhuang Jian, senior economist with the Asian Development Bank.

China's benchmark Shanghai Composite Index rose 3.2 percent, or99.04 points, to end at 3,195.3. It dived 2.36 percent Friday, tracking the slumps on the global markets.

Dubai stunned the global financial markets with an announcement Wednesday that it was asking for a six-month reprieve on paying Dubai World's 59-billion-U.S.-dollar debts as a first step to restructuring the Emirate's leading state-owned company.

"The Dubai debt default is only an individual case and its effects will not prevail," said Wu Xiaoqiu, a professor of finance at the Renmin University of China.

The case had limited influence on China's economy and only investors in the Dubai World would suffer huge losses, Wu said.

China's three leading banks -- the Industrial and Commercial Bank of China, Bank of China and Bank of Communications, said Friday that they did not hold bonds issued by Dubai World. China State Construction Engineering Corp., the largest contractor in China, said its business in the Emirate would not be affected.

Chen Bingcai, researcher with the China National School of Administration, dispelled concerns that the Dubai debt crisis would trigger a new financial crisis. "The Dubai event is just a reflection of carry-over effect of this round of global financial crisis," he said.

According to Chen, the default, triggered by property price slump, financial supply chain breakdown and massive laying-off of construction projects, should have happened earlier. "All the problems have been disguised as the debt is not mature during the global financial crisis," he said.

China could watch the development of the case but should not overreact or panic, said Chen Dongqi, deputy director of the Macro-economic Research Institution under the National Development and Reform Commission.

However, analysts noted that the Dubai case should serve as an alert to China, given its current red-hot real estate market. They advised the government should step up efforts to eliminate any economic bubble, especially in real estate sector, before it burst.

The recent breath-taking surge in housing prices in major Chinese cities, including Beijing, Shanghai and Shenzhen, has sparked new debates about whether there is a bubble in the industry.

It would be really dangerous if there was a bubble as the heating-up industry served as a major engine for China's economy, Zhuang said.

Source: Xinhua