May 3 (Bloomberg) — Investor Marc Faber said China’s
economy will slow and possibly “crash” within a year as
declines in stock and commodity prices signal the nation’s
property bubble is set to burst.

The Shanghai Composite Index has failed to regain its 2009
high while industrial commodities and shares of Australian
resource exporters are acting “heavy,” Faber said. The opening
of the World Expo in Shanghai last week is “not a particularly
good omen,” he said, citing a property bust and depression that
followed the 1873 World Exhibition in Vienna.

“The market is telling you that something is not quite right,” Faber, the publisher of the Gloom, Boom & Doom report,
said in a Bloomberg Television interview in Hong Kong today.
“The Chinese economy is going to slow down regardless. It is
more likely that we will even have a crash sometime in the next
nine to 12 months.”..

An index tracking Chinese stocks traded in Hong Kong dropped
1.8 percent today, the most in two weeks, after the central bank
raised reserve requirements for the third time this year. The
Shanghai Composite has slumped 12 percent this year, Asia’s worst
performer, as policy makers seek to rein in a lending
boom that’s
spurred record gains in property prices. China’s markets are
shut for a holiday today.

Copper touched a seven-week low and BHP Billiton Ltd., the world’s biggest mining company, fell the most since February
on concern spending in the world’s third-largest economy will
slow and after Australia boosted taxes on commodities producers.
Rio Tinto
Ltd., the third-largest, slid as much as 6 percent.

Chanos, Rogoff

Faber joins hedge fund manager Jim Chanos and Harvard
University’s Kenneth Rogoff
in warning of a crash in China.

China is “on a treadmill to hell” because it’s hooked on property development for driving growth, Chanos said in an
interview last month. As much as 60 percent of the country’s
gross domestic product relies on construction, he said. Rogoff
said in February a debt-fueled bubble in China may trigger a
regional recession within a decade.

The government has banned loans for third homes and raised mortgage rates and down-payment requirements for second-home
purchases. Prices rose 11.7 percent across 70 cities in March
from a year earlier, the most since data began in 2005.

The government has stopped short of raising interest rates to contain property prices. Within an hour of the central bank
announcement on reserve ratios, Finance Minister Xie Xuren said
that officials remained committed to expansionary policies to
cement the nation’s recovery.

Stocks ‘Fully Priced’

The nation’s economy grew 11.9 percent in the first quarter, the fastest pace in almost three years. The government projects
gross domestic product growth for the year of about 8 percent.

The clampdown on property speculation may prompt investors to turn to the nation’s stock
market, Faber said. Still, shares
are “fully priced” and Chinese investors may instead become
“big buyers” of gold, he said.

BlackRock Inc. is among money managers reducing their
holdings on Chinese stocks on expectations that economic growth
has peaked. The BlackRock Emerging Markets Fund has widened its
“underweight” position for China versus the MSCI Emerging
Markets Index to about 7.5 percent from 4.6 percent at the end
of March, the fund’s London-based co-manager Dan Tubbs
said.

Industrial & Commercial Bank of China Ltd., China
Construction Bank Corp. and Bank of China Ltd, the nation’s three
largest banks, are trading near their lowest valuations on record
as rising profits are eclipsed by concern bad loans will
increase.

Local Governments

Citigroup Inc. warned in March that in a “worst case scenario,” the non-performing loans of local-government
investment vehicles, used to channel money to stimulus projects,
could swell to 2.4 trillion yuan by 2011.

Housing prices nationwide may fall as much as 20 percent in the second half of the year on government measures to curb
speculation, BNP Paribas said April 23. Under a stress test
conducted by the Shanghai branch of the China Banking Regulatory
Commission in February, local banks’ ratio of delinquent
mortgages would triple should home prices in the country’s
commercial center decline 10 percent.

Shanghai is projecting as many as 70 million visitors to the $44 billion World Expo, more than 10 times the number who
traveled to the 2008 Beijing Olympics. More than 433,000 people
visited the 5.3 square-kilometer (3.3 square-mile) park on its
first weekend.