By Yi Xianrong
China should learn lessons from the Dubai crisis and take concrete measures to prevent a similar crisis from happening in its speculation-ridden real estate sector, which could undermine the national economy.
The announcement by the Dubai government of the United Arab Emirates last week that it was seeking a rescheduling on debt owed by Dubai World, the emirate’s flagship conglomerate, and its real estate subsidiary Nakheel, threw the global financial markets into panic. Worldwide, foreign exchange, gold and stock prices suffered a drastic drop upon the announcement of the news.
The debt crisis in the oil-rich Arab country that has witnessed stunning real estate development in recent years has triggered widespread concern over the magnitude of the negative impact it will have on the global financial markets and on the fledgling recovery in the world economy. Unlike the US mortgage crisis, which was triggered by the bursting of the property bubble and whose negative impact led to the collapse of the US financial system and extended to the world’s real economy, the Dubai crisis is more about a credit dealing between borrowers and lenders. Defaults or credit violations will mainly cause losses to creditors alone and risks are not expected to extend to the whole financial market. Due to its comparatively smaller scale and confinement to the region, the Dubai crisis is expected to end soon with the assistance of other countries and will not cause much ripples across the global financial markets, in particular after the government of the United Arab Emirates pledged to lend money to the banks operating in Dubai.
According to predictions by some analysts, the market is going to digest the negative impact engendered by Dubai World quickly. The underlying reason why a crisis of such relatively smaller magnitude caused such a panic across the world financial markets should be attributed to fragile investor confidence in the wake of the outbreak of the global financial tsunami. Severely battered by the unprecedented global financial crisis in decades, any financial ripples plunge investors into fear and force them to flee the market for capital security. Also, the quick and timely dissemination of information in a well-developed information society has contributed much to stoke up investors’ fears over any negative news.
As the world’s third-largest economy that has expanded overseas investment in recent years, China is greatly concerned over the negative effects the Dubai crisis might have on its economy.
China Daily for more