Real estate speculation & provincial govt infrastructure spending is the foundation of China's incredible growth. Ever since export declines to the US, Japan and Europe post-GFC, the health of the Chinese economy has become increasingly reliant upon the construction, steel and cement sectors. But with finance for large projects drying up and real estate prices now declining (down about 5% in China's main cities in April from a year earlier) and sales volumes plunging (halved since the start of 2011) all that is about to change.
The risks from a deflating China property bubble are global - especially to Australia's economy which has become so reliant on resource exports to China. China consumes up to 50% of the world's iron ore, cement and coal and Chinese real estate is the main driver of that demand. Two-thirds of China's steel consumption is real estate driven. A continued deflation of house prices in China would not only threaten their banks and add to global instability, it would quickly see commodity prices, Australian stocks and our dollar selloff. Only then would the global deflationary trend become apparent to the masses and the many pundits here in Australia still wearing rose coloured glasses.
