China's property market and the global economy

The stimulus was a response to the CCP's goal to build infrastructure, housing, utilizing China's huge labour force.

The Irish government's intervention to save private banks overloaded with debt from its property crisis, effectively converted private debt into government debt and the eventual bail out by the EU.

Beijing's problem is the result of state debt from the very start, with no EU bailout.

Analysts suggest China's property market is overvalued from between 15% to 50%, and in excess of 70% in cases.

A 10% decline in property prices could raise defaults by 300%, triggering a wave of default rates.

A 30% decline could raise defaults by 500%.

The bottom line

The CCP has ignored -

1. current home prices are beyond the reach of average owner/occupiers
2. home ownership only increases when house prices reach the affordability level of the owner-occupier market.
3. demand for low cost housing
4. implications for massive inventories of unoccupied housing and commercial space
5. combined effect of unoccupied and non-performing property investment, and related debt
6. degradation effect on overpriced securities
7. local government property related debt
8. bank NPL risk

The CCP faces a daunting economic challenge in 2011.

Potential buyers will quickly respond to affordable housing, undermining demand for vacant top end properties.

Falling property values will cause overvalued mortgages in wealth management bundles to plummet below their book values, exacerbating problems for local government and investors efforts to recover their investment, and for banks to cover NPL risk.

Focus on heavy investment in short-term growth created massive overcapacity, local government and bank debt, major market imbalances, housing shortages.