Fears are growing that a property bubble may burst - and a national obsession with gambling doesn't help, says Nick Hood.

The newspaper hoarding said it all: “Lending Falls as Fears of a Double Dip Grow”. Hong Kong is feeling the chill as China’s headlong growth rate threatens to fall to the crisis level of an annualised rate of only 10.6% in the second quarter of 2010, down from 11.9% in the first quarter.

Hong Kong’s economic soothsayers believe that the social stability of China depends on maintaining a growth rate that almost all the rest of the world can only marvel at and never hope to match.  And any problems in China will be magnified many times over in Hong Kong through the prism of its role as the economic conduit between East and West in both financial services and trade.

Fears are growing that a property bubble may burst as the Chinese authorities try to moderate rampant speculation, as well as about what impact there will be on bank liquidity and lending from some distinctly sub-standard returns on major mainland infrastructure projects.

Activity in the insolvency and restructuring markets is well below the expectations of many professionals, and not because the robust financial health of China means that there are no businesses or individuals to be rescued. Rather because many banks in Hong Kong are turning their face against work out proposals, mainly through indifference to the fate of their over-extended borrowers.

One unexpected source of work for these vampires of the recession is the continuing success of casinos in Macao, and the widespread gambling addiction of Hong Kong entrepreneurs. Several apparently thriving restaurants in Kowloon’s seafood district have changed hands recently as gambling debts have laid their owners’ credit ratings low.

It was no great surprise either when officials of the Hong Kong Jockey Club confirmed that total bets placed so far this year at the races are 11.5% up on 2009.  Feelings of uncertainty and insecurity only serve to fuel the Chinese passion for trying to beat the odds.

As always, Hong Kong’s streets and air-conditioned inter-building walkways were teeming, but there were few shoppers in the endless malls of luxury goods stores and the windows of Marks & Spencer were plastered with sale signs.

Empty taxis were in plentiful supply both at lunchtime and late in the evening, suggesting that the current depressed mood is reinforcing the saving habits of the Chinese community and curbing the rampant consumption habits of ex-pats.

There also seemed an air of listlessness about the crowds, with much less than the usual scurrying urgency. Perhaps betraying the financial uncertainties that are preying on so many of their minds, as well as concerns about the ever growing influence of Beijing.

How interesting then that for the very first time, the head of the Stock Exchange does not speak Cantonese but Mandarin. This is a clear sign that the greater concern is no longer with the Territory’s local business and investor community, but instead with the mainland authorities and the Mandarin-speaking investors from China’s nouveau riche cadre of factory owners and property developers.