Commercial Property: China could be “Dubai times 100 or 1,000.”

02-12-2010 • Bloomberg.com

The commercial property space under construction in China at the end of November was the equivalent of 6,800 Burj Khalifas -- the 160-story Dubai skyscraper that’s the world’s tallest. It’s difficult to determine how exposed Chinese banks are to real estate debt because loans booked to some state-owned companies as industrial lending may have been used to invest in property, say Xie and Charlene Chu, who analyzes Chinese banks for London-based Fitch Ratings Ltd. in Beijing. A downturn in the property market may be accompanied by a surge in nonperforming loans. The Shanghai office of the banking regulatory commission said on Feb. 4 that a 10 percent fall in property values would triple the ratio of delinquent mortgages there. Shares of Industrial & Commercial Bank of China Ltd., the world’s largest bank by market capitalization, are down 13 percent this year. China Construction Bank Corp., the second- largest, has fallen 10.2 percent. Both are based in Beijing. The Shanghai index is down 9 percent. Fund manager Joseph Zeng says he has a contrarian view on China’s banks, on the grounds that rising interest rates this year will benefit their net interest margins. Economic Cycle “For us, non-performing loans are not expected to be a big issue until 2013, the peak of the current economic cycle,” said Zeng, head of Greenwoods Asset Management Ltd.’s Hong Kong office, in a phone interview.