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The Dubai debt crisis has shaken global financial markets with major stocks worldwide plunging sharply. Many say Dubai is paying the price for its inappropriate economic growth model. Economists are also reminding China to learn the lessons, given its current red-hot property market.
Many economists agree that Dubai relies too much on foreign capital and large-scale construction projects. The government has borrowed massively to fund its property boom.
As a result, the global financial crisis scored a direct hit on Dubai's economy. Housing prices have slumped by around half. The burst of the property bubble has also led to project cancellations at a cost of 300 billion US dollars, which in turn has prompted lay-offs.
Experts say China should learn from the experience.
Xiang Songzuo, Chief Economist Global Business & Finance Inst., said, "I believe one of the biggest lessons China should learn is caution in the property market. Has a bubble already emerged in the market? Given pressure from unemployment, the fall in exports and people's incomes, can China stand such sky-high housing prices? If not, once the bubble bursts, the banking system will be the first to suffer. If developers can't pay back bank loans, these banks will bear a large amount of bad loans. Actually, many bank insiders are worried about the problem."
China's stock market has dropped sharply following Dubai's announcement. However, some experts say the current impact is more in the mind, while the real impact remains uncertain.
They also caution against withdrawal of international hot money from new emerging markets, which could cause another round of financial pain.
Instead, they are calling for a balanced economic recovery and better control of hot money.