China’s tottering property market presents one of the greatest threats to the global economy. Not only do the construction and real estate industries account for a full 13 per cent of Chinese gross domestic product, they also form the backbone of the country’s fixed asset investment, the lodestar for commodity-exporting economies the world over. News of sagging real estate market activity is, therefore, a concern in its own right. More troubling, though, is that faith in Beijing’s ability to prevent a slump from descending into a crash is starting to unravel.
The newsflow is bleak. Official statistics for July showed 64 of 70 cities surveyed experiencing falling home prices, the biggest monthly proportion of declines since records began in 2005. Developers are pulling back from new investments, and floor space sold in July tumbled 16.3 per cent year on year, down sharply from June.
Such deepening frailties set up the prospect of six months of make or break for Chinese real estate, according to Stephen Green of Standard Chartered in Hong Kong. He and several other analysts predict that Beijing will try to prevent a crash, but there are doubts over the effectiveness of any such intervention. The main problem is that banks, squeezed by huge deposit outflows and dwindling fee incomes as their shadow finance activities are curtailed, have less appetite to lend to property and other industries beset by overcapacity and slowing growth.