BEIJING (MNI) - A large bubble is forming in the Chinese property market as a result of the massive increase in bank lending that is the central component of the government's economic stimulus program, one of the country's most prominent real estate developers warned in an interview with the Financial Times.

Zhang Xin, chief executive of Soho China, one of the country's most successful privately owned property developers, said the surge in lending so far this year is causing rampant overbuilding that risks the country's long-term growth prospects.

"Real estate prices should only go up because people want to actually use the space, but at the moment we can see more and more empty buildings across the whole country and in every real estate segment," Zhang told the FT. "The rising prices are a direct result of so much money coming from the banks and the Chinese banks should be very worried."

Urban property prices in 70 big and medium-sized Chinese cities rose 3.9% in October from a year earlier, accelerating from September's 2.8% rise, according to government data.

Investment in real estate development, a key driver of economic growth, rose 18.9% y/y in the first 10 months of the year, up from 17.7% in January-September.

Zhang warned that the current speculation was a bad sign for future growth.

"In Manhattan, they have vacancy rates of 10-15% and they feel like the sky is falling, but in Pudong (a major business district in Shanghai) vacancy rates are as high as 50% and they are still building new skyscrapers," she said.

"If you look at GDP growth, then China looks like a new engine driving the global economy, but if you look at how growth is being created here by so much wasteful investment you wouldn't be so optimistic."

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