China's property market and the global economy

Attempting to cool the property market, Beijing ignores the dangers of inflated mortgage values, debt levels, and practicality of reducing huge inventories of unoccupied and overpriced housing and commercial space.

How to recover the investment and pay outstanding debt on top end housing units and facilities, plus square kilometres of vacant and underperforming commercial space without triggering a serious decline in the property market is a major challenge for the CCP.

Because of the extent of investment in vacant floor space, banks and mortgage holders will soon have to move to cover debt risk.

Once this happens, the rush will be on as investors panic to salvage what they can in a saturated, overpriced, and falling market.

China's property market is inextricably linked to the stock market, state bank debt, local and central government debt, and institutions holding overvalued mortgages.

A decline in values will trigger potentially severe ripple effects in those sectors, flowing to foreign investment.

Already in overcapacity mode in several key sectors, Beijing's problems are further complicated by rising inflation and pressure from trading partners to revalue the RMB.

China's economic growth is driven by domestic infrastructure and property development, but has low domestic consumer spending and declining consumer goods exports.

Beijing's dilemma is one of its own making by avoiding early corrective measures.

Regardless, steps to reduce inflation and speculation in the housing sector, and not allowing the RMB to rise, will have a negative effect on property, bank debt risk, the stock market, and foreign investment.

A property boom with Chinese characteristics

This is a property boom with Chinese characteristics, unrelated to property bubbles experienced in market economies around the world.

China's is one of stimulus fuelled state driven speculation, excluding major participation for private enterprise, and supported by government directives to banks to lend, and local government and state enterprises to borrow and build.