Infrastructure and real estate related activates are key growth drivers for any economy. Eitehr success or doom can be driven if the balance in these activities is tipped. With western power houses collapsing, the focus on the shifting power to the Asian countries. Amist all this optimism that India and China will to a large extent shielded from the ongoing financial crisis, there is another news that is creating a stir, that of house prices in Shanghai, Shenzhen and Guangzhou are plunging, and the global economy may grind almost to a halt next year because of it.
Construction of homes, offices and factories fell at least 16.6 per cent in October after rising 32.5 per cent a year earlier, according to Macquarie Securities Ltd. That's squeezing an economy already slowed by recessions in the US, Japan and Europe that have cut demand for exports. Building is the biggest driver of China's expansion, contributing a quarter of fixed- asset investment and employing 77 million people.
The central bank cut its key interest rate by the most in 11 years last week and the government said “forceful” measures were needed to arrest a faster-than-expected economic decline. Without more rate cuts and government spending, China is unlikely to contribute the 60 per cent of global growth Merrill Lynch & Co forecasts for next year, further slowing the world economy.
“China is now at the heart of the global slowdown,” said Jim Walker, chief economist at Asianomics Ltd, an economic advisory firm in Hong Kong. “It means that global growth is probably going to be dragged down close to zero next year.”
The World Bank last week slashed its forecast for China's expansion next year to 7.5 per cent, the slowest in almost two decades, from 9.2 per cent in the previous quarterly report, saying the country could no longer rely on overseas consumers.
China's export orders and output shrank in November by the most since records began as the global financial crisis sapped demand for the nation's toys, textiles and computers.
Exports and property together have contributed about half of the expansion in China's GDP, estimates Shanghai-based Andy Xie, an independent analyst who was formerly Morgan Stanley's chief Asia economist.
Merrill's forecast of 1.5 per cent global growth next year is based on an 8.6 per cent expansion in China. The prediction on November 21 came 12 days after China announced a $586 billion stimulus plan, mostly for public works projects.
Shanghai house prices fell 19.5 per cent in the third quarter from the previous three months, according to real estate broker Savills Plc Declines in apartment values are accelerating in Shenzhen and Guangzhou, two of the fastest growing cities in Guangdong province, which produces 30 per cent of China's exports.
Construction will contract 30 per cent next year after expanding 9 per cent in the first three quarters of 2008, according to Macquarie Securities.
Slumping demand for commodities is already reverberating beyond China's shores. Melbourne-based BHP Billiton Ltd last week abandoned plans to buy Rio Tinto Group and create the world's biggest mining company, blaming a rout in commodities prices. China is the world's biggest metals buyer and the second- largest consumer of oil.
Steel prices in China have tumbled because of the slowdown in construction, which accounts for 38 per cent of demand, according to Jing Ulrich, chairwoman of China equities at JPMorgan Chase & Co Spot prices of hot-rolled sheet have plunged almost 40 per cent since the end of June to 3,594 yuan a ton.
For every 1 percentage point growth in China's economy, the rest of Asia will be boosted by half that, says Huang Yiping, chief Asia economist at Citigroup Inc in Hong Kong.
Countries with the most at stake are Taiwan, which shipped almost 36 per cent of its exports to China last year; South Korea, 25 per cent; and Japan, 19 per cent, according to UBS AG.
Taiwan's export orders from China and Hong Kong dropped 23 per cent in October, the biggest decline since 2001, the government reported on November 24.
Concern over a slowdown spurred China to cut interest rates by 1.89 percentage points since September and end restrictions on bank lending. To encourage home sales it trimmed mortgage rates, taxes and down-payments for first-time home buyers.
That's a U-turn from the first half, when Central Bank Governor Zhou Xiaochuan was focused on fighting inflation that rose to a 12-year high of 8.7 per cent in February. It dropped to 4 per cent in October.
The slump in residential and commercial building may undermine efforts to buoy the economy.
Source : Business Standard
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