Chinese developers’ flexing their newfound muscle comes as the mainland’s commercial real estate market struggles through one of its most difficult patches in years. For much of last year, commercial developers in China felt the pinch from tighter lending standards and plummeting rent prices.

Though the woes have little to do with the subprime debacle that hampered U.S. development, builders face a similar shift in market sentiment as many of China's big cities report softening commercial prices and slumping transaction volume. In the third quarter of 2009, for example, Shanghai's top-grade office market saw its first quarter-on-quarter increase in vacancy in recent years, hitting 14.1 percent, according to property brokers Colliers International. Colliers says average commercial rents fell 9 percent when compared with the first quarter of the year.

“We’ve seen many of the bigger commercial developers struggle over the past 15 months,” says Eric Lam, general manager for the Guangzhou office of Colliers International, a property broker and consultant. “We’re only now starting to see things pick up.”

The challenging market conditions will make it more difficult for foreign developers to jump into the Chinese market, says Kevin Manning, a longtime Asia-based commercial real estate expert who is now senior vice president and director at Cornish & Carey Commercial. “American or any foreign developer will have to be very careful dealing in this market at the moment,” says Manning. “The softening in the commercial sector means fewer opportunities and more competition for even the smaller projects.”

American real estate developers have been building in China since the country opened its doors to the outside world in the late 1970s. The trend accelerated in 1980s and ’90s as the supply of international-grade office and residential space fell well short of demand. And outside funds coming into China continue to build. Foreign investors dumped $4.7 billion into China’s office-building sector in last year’s third quarter, up 52 percent year on year, according to a report by CB Richard Ellis Group Inc.

Shanghai, China's commercial and financial center, still attracts hordes of U.S. and foreign developers, and was ground zero for a building boom the past decade. But local analysts say a broad uncertainty about China's commercial sector and stiffer competition from Chinese developers means the days of enviable profits for U.S. developers are dwindling.

“American developers are still well regarded in China,” says business professor Jianping. “But the pace of contracts will slow now that the Chinese have found a way to better compete.”