So, everything is fine in China? Not quite. Dubai's problems also offer two important warnings.

The first warning is that foreign speculators were important to Dubai's property market. The city is a popular target for investors, whether from Iran, Russia, or the United Kingdom. But these investors left when their economies were hit by the economic crisis. The result was a further decline in demand that Dubai nationals were unable to fill.

Foreign speculators certainly play a smaller role in China's property market. Yet, local speculators invest in neighboring cities, and can leave easily, much like expatriates left Dubai. Curbing this type of investment is crucial, otherwise demand for residential apartments will grow faster than local economic conditions justify.

The second warning is that Dubai is a small economy surrounded by larger neighbors. A small increase in regional demand can have a large impact on Dubai's economy.

By contrast, China must rely increasingly on its own domestic demand to drive growth, so the importance of preventing a property bubble is far greater. If the property sector and construction activity were to correct sharply, regional demand could not provide the same support for China, as it has for Dubai.

More than ever, China must rely on its domestic demand if it hopes to escape the global economic crisis. This only emphasizes the importance of economic reform. The government's recent tightening measures were thus welcome. The local residency requirements imposed by some cities, was especially welcome.

(The author is chief China economist at the Royal Bank of Scotland. The views expressed are his own.)