As Torto Wheaton's report points out, the situation in the US isrelatively straightforward: "A shrinking economy and a contractingjob market translate into weakening property fundamentals." Thereport, authored by Torto Wheaton economist Arthur Jones, contraststhat situation with conditions in China, which has not sufferednegative annual GDP growth in more than 30 years.

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That, Jones' analysis says, makes it more difficult to foreseehow the economic downturn will play out in China, where the topthree office markets are in Beijing, Shanghai and Hong Kong.. Otherfactors complicating the forecast include the sizzling annualgrowth rate of more than 10% in China's economy, and the strengthits markets have shown in weathering the Asian financial crisis in1997 and the SARS outbreak in 2002.

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Despite these strengths, China's economy and commercial realestate markets are not exempt from the impact of slowing economicgrowth, according to the Torto Wheaton analysis. "In fact, whileChina's economy continues to expand, concerns mount among economicplanners," the report says. Specifically, it notes that Hong Kongmay already have entered into a mild recession.

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Some of the same negative indicators that have plagued the USoffice markets may now be vexing China. For example, layoffs inboth manufacturing and construction in some of the country'sprimary cities "are among the first indications that the economymay face struggles over the coming quarters, as global demandcontinues to erode demand for China's exported goods," TortoWheaton says. Even with those caveats, however, the analysis satesthat the outlook for China's economic expansion "is not all thatbad." Both China and Hong Kong are expected to continue enjoyinggrowht despite the uncertain global outlook.

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Torto Wheaton's forecast says that, although data have yet toshow it, "The current financial crisis will present a significantobstacle for China's office markets." It notes that Beijing andShanghai have construction pipelines through the next two yearsthat amounn to more than twice what they have averagedhistorically. "Although the rate at which space is absorbed willlikely remain positive for these two markets, slower employmentgrowth will likely be enough to push rent growth lower over thenext two years," the report concludes.

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Colliers International's latest quarterly report for the Chineseoffice market notes that new office property completions andleasing transactions declined in the third quarter in large partbecause the Olympic and the Paralympic games—held in Beijing inAugustand September, affected construction work schedules and somelogistic services in and for the city's real estate sector. "Due tothe construction being halted for the Olympics, completiondates ofat least 15 office properties were rescheduled to the end of 2008or the beginning of 2009," the Colliers report points out.

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