Jim Chanos, founder of the U.S. hedge fund Kynikos Associates, characterized the property bubble in China as “Dubai times 1,000—or worse.”Many Chinese economists agree. Yi Xianrong, a senior researcher at the Institute of Finance and Banking under the Chinese Academy of Social Sciences, said the property bubble in China was far worse than the Dubai crisis in an interview with the Beijing-based International Herald Leader. Edited excerpts follow:

It is simply a matter of time before the Chinese real estate bubble bursts.

Chanos did not exaggerate in his comparison of the current Chinese property bubble situation and that of Dubai last fall. The National Bureau of Statistics estimated that average housing prices grew 24 percent in 2009. Housing prices in metropolitan areas like Beijing,Shanghai and Shenzhen are much higher than those in Dubai, which should make the problem all but apparent.

The Dubai debt crisis taught us that we must pay close attention to the real estate bubble, and re-evaluate the real estate industry’s function and status in the national economy because the industry is too important to take for granted. A bubble burst in China would deal a fatal blow not only to our own economy, but would also extinguish the world’s hope for recovery.

As it stands, the real estate bubble seems certain to pop and nobody can stop it. The sooner the government takes measures, the less damage the bubble can cause to our national economy.

The U.S. subprime mortgage bubble took almost 20 years to burst. Based on this, the Chinese bubble may take more time to expand and burst.

But before the U.S. mortgage crisis,economists had warned and cautioned the government and the people that a catastrophe loomed large, only to have their pleas fall on deaf ears. Ordinary citizens only became aware of the seriousness of the bubble when Wall Street giants began collapsing one after the other. The same could happen in China.

The current danger is property market speculation. The government recently lifted the down payment requirement buyers of a second apartment or house need to pay. But speculation is not based solely on the purchase of a second residence. The government holds a false perception the first house is for the buyer’s family and the second house is reserved for speculation. The fact is people can buy the first house for rental purposes, choosing to live elsewhere.

Therefore, it is important that the government does not mix up but come to understand these basic concepts.

The root cause for the 2009 housing price surge was the extremely favorable credit policies adopted by the government. The government has to some extent realized the potential damage, but its new policies to control property do not touch the fundamentals of the overly favorable policies.

If the government is truly determined, it should no longer allow the speculators to enjoy ultra-low loan interest rates. Why should the government support their harmful speculative activities by lending easy money to them? Why does the government cap the deposit interest rate to the minimum so speculators can abuse the money they borrow? This has quickly turned into a major problem threatening China.

Current regulations essentially allow speculators to borrow other people’s money to make property speculation. If this does not change, matter will only get worse, leading to a potential Chinese equivalent of the U.S. crisis in the housing market. ■