The Landing Will Be Hard

As we have opined in previous posts on its banking system and real estate market, China's economy is in a pretty bad shape. This is corroborated by a couple of recent economic statistics. Last Sunday, China's National Bureau of Statistics published the new housing numbers for February, saying that

Comparing with the previous month, among 70 medium and large-sized cities, the sales prices of newly constructed residential buildings declined in 45 cities while that of 21 cities remained at the same level. For 4 cities with increasing prices month-on-month, the increases were 0.1 percent.

The real economy (as opposed to asset prices) is not doing great either. On Thu HSBC's manufacturing

RBA Complacent on China as Evident in February Minutes

If China's bubble were to burst, that would clearly take Australia's economy down with it. The minutes of RBA's February meeting show a complete complacency over China's economic slowdown (and the power of Beijing to control it):

Importantly, though, the Chinese economy continued to expand strongly, albeit below the pace of the past couple of years, and inflation there had moderated. Prices and turnover in the Chinese residential property market had fallen, especially in the coastal provinces, where measures by the authorities to cool the market had been most aggressive;

Chinese Real Estate in Broad Decline

We have already seen anecdotal evidence of sharp price cuts by property developers eager to move inventory of unsold homes (China's Housing Crash is Gathering Momentum) or sharp drops in the most speculative luxury vacation home market (Property Prices in "China's Hawaii" Down Almost 30%). The market reversal is now spreading with Dec marking the third month in a row of negative average growth of home prices in all of China. Moreover, according to Reuters, prices dropped in 52 out of 70 cities. The situation is far from desperate but can get worse very fast with the government continuing efforts to reduce property speculation, developers losing access to funding and new home sales slowing to a crawl. The real trouble will probably start when prices in all cities start dropping at the same time.