The Building Bubble in China

Beijing - Jack Rodman has cashed in on property busts from Los Angeles to Tokyo, buying and selling soured loans and counseling other investors. Now he's convinced the Beijing real estate market is about to tumble. Rodman figures about half of the city's commercial space is vacant, and to prove it he keeps a slide show of 55 empty office buildings in the Chinese capital on his computer. There are an additional dozen, he says, that he hasn't had time to photograph. "I took these pictures to try to impress upon people the massive amount of oversupply," says Rodman, president of Global Distressed Solutions, which advises investors on Chinese property.

Much of the $1.4 trillion in loans made by Chinese banks last year—with considerable encouragement from officials aiming to boost growth—was spent on skyscrapers and other commercial property. Now empty buildings are sprouting across the mainland. Beijing had an office vacancy rate of 22.4% in the third quarter, the ninth-highest of 103 markets tracked by broker CB Richard Ellis (CBRE) (CBG). That figure doesn't include projects about to open, such as the 74-story China World Tower 3, Beijing's tallest building. "There's a monumental property bubble and fixed-asset investment bubble under way," says James Chanos, founder of New York hedge fund Kynikos Associates. "And deflating that gently will be difficult at best."