China property slump threatens global economy

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.

“That growth is gone,” he said. “Can the government make it up with something else? It’s going to be tough.”

Merrill’s prediction on Nov. 21 came 12 days after China announced a 4 trillion yuan (US$586 billion) stimulus plan, mostly for public works projects.

“In order to curb an excessive economic slowdown, we must adopt forceful measures that have a noticeable impact,” said Zhang Ping, chairman of China’s top economic planning agency, on Nov. 27. “Some economic indicators weakened further in November, showing a faster decline.”

A second stimulus package to boost consumption may be imminent, the Beijing-based Economic Observer reported Nov. 24. Measures being considered include raising income-tax thresholds, higher salaries for state workers and increased subsidies for low- income groups, the newspaper said, citing people involved in discussion of the plan.

“If real estate contracts by 30 percent it doesn’t matter how much the government spends on infrastructure, the economy is still going to be very weak,” said Paul Cavey, a Hong Kong-based economist at Macquarie who forecasts a 6.6 percent expansion next year. “Property is the epicenter of economic weakness.”

Slumping demand for commodities is already reverberating beyond the shores of China, which is the world’s biggest metals buyer and the second-largest consumer of oil. 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

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 percent of its exports to China last year; South Korea, 25 percent; and Japan, 19 percent, according to UBS AG.

“The global financial crisis won’t get China to zero percent growth and neither will recession in developed economies,” said Tao Dong, chief Asia economist at Credit Suisse in Hong Kong. “If there’s a collapse in the property market that might do the job.”

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