Once the debt crisis of Dubai World appeared on the news, I happily went to my nationalistic friends to ask, "don't you think Shanghai will be the next Dubai?" No, they didn't even think about it. Of course Shanghai is different: Shanghai is not in the desert; it has a big local population; it has full backing of the Chinese government and the Chinese banks...
What Dubai and Shanghai have in common is that all their resources are concentrated in the hands of a few power elites. And these elites can indulge themselves in self-aggrandizement with few public accountability. Just look at the skyscrapers in these two cities. Now that the Burj Dubai is left half-done, the Shanghai Center--the 632m tower--might become the tallest building in the world when it is finished in 2014. Why is it a bubble? Because office buildings in Shanghai are already facing over-supply, the occupation rate is around 50%, and you cannot get your investment back from rent (according to current rent-purchase ratio) within 50 years. The power elites' obsession with erecting tall buildings might be a good case for psycho-analysis, but I will only write about what I know for sure, that they are betting with public money.
In the case of the Shanghai Tower, the developers are three government-owned companies. They are using the public land for free (In China, all lands are owned by the state), and they get their funding from state-owned banks. So what if the Shanghai Tower becomes just another empty building? The banks will write it off as a bad loan. What if the banks cannot survive so many bad loans like that? The government will use public money to bail them out (as it did in 2004). In other words, everyone is blackmailed by the bubble.
Dubai thought it had found a new path to prosperity when it stopped exporting oil. Shanghai is not that different, when it can no longer depend on exporting cheap labor (our unique natural resource), it resorts to credit expansion and construction as the engine of growth. Others have failed in that path, Dubai, Spain, Japan...but somehow many people here have no doubt that we will be the exception.