BEIJING - Chinese real estate developers have been pouring money into new investments at a frantic pace, fueling concerns that a bubble is already a fact and that a hard landing may be unavoidable.

The government said today that investment in real estate soared 41.1% in the first quarter of the year, despite months of government efforts to stem the steady stream of capital flowing into the property market.

"It's a bubble. Every bubble has to burst. It's a matter of  time," said Andy Xie, a China economist with Morgan Stanley in Hong  Kong. "If the government doesn't do anything, the bubble becomes  bigger."

With thick forests of cranes hovering over its largest cities,  it is a matter of little dispute that China is experiencing one of  history's big building booms.

"The market is heating up, but I'm not sure whether it's  overheating," said an executive with real estate developer SOHO  China, who gave his surname as Zhang. "Growth in investment is fast,  but sales are also pretty good."

Taiwan and Hong Kong investors originally led the way in the  ongoing real estate craze. But they have been joined quickly by Chinese developers and officials who have either been bribed or are eager to see local  economies bloom.

The radically intensified level of activity helped push  fixed-asset investment - which includes real estate investment as a  key component - to 53% growth in the first two months.

Although the figure has slowed somewhat to 43% in the  first quarter, economists worry that a soft landing is simply not  possible from such heights.

"It is extremely difficult, if not impossible, to guide fixed  investment from 50% annual growth at present to the trend  rate of about 10 to 12%,"
said Xie.

"There are no precedents  of achieving a soft landing with so much excess."

He warned if the bubble bursts, it could lead to "horrific  financial losses," which will ultimately be shouldered by taxpayers,  because the banks that have provided the property loans are nearly  all state-owned.

Some economists argued overinvestment in real estate was a  problem limited to certain pockets of especially high economic  activity, such as Shanghai.

"The property sector is not overheated overall," said Chen  Xingdong, chief China economist with BNP Paribas Peregrine in  Beijing.

"In some specific regions, there's a worry. But it's not a  nationwide problem."

Nevertheless, China's policy makers are worried enough to  consider a range of measures, including a hike in local currency  interest rates, which has not been seriously on the agenda for a  decade.

Short of that, they may adopt softer measures, such as a hike in  the banks'
reserve deposit ratio, or a crackdown on spendthrift  local officials and lending officers.

"Administrative means in a non-market based economy are always  very powerful, if they are determined enough to do it," said DBS  Bank economist Chris Leung.

AFP 15 April 2004