Thursday, January 26, 2012

Property sector may darken China's cheery growth story

Business Times: Wed, Jan 25
CHINA-WATCHERS sighed with relief when the year- end statistics were published last week as the surprises were mostly positive. But while many proclaimed that fears of a hard landing had vanished, the Year of the Dragon may still pack a bite.

After the initial euphoria passed, many are now taking a closer look at the numbers - and fresh worries are emerging. The biggest fears concern the real estate sector, which is going from bad to worse but whose precarious state was masked by the glowing headline numbers.

GDP grew 9.2 per cent in 2011 and 8.9 per cent in the last quarter. Retail sales stood strong and rose 18.1 per cent in December while industrial production rebounded in the same month to 12.8 per cent against 12.4 per cent growth in November.

Even inflation has been contained (prices rose 4.1 per cent in December) leaving some leeway for fiscal spending, and analysts don't expect any change at least for the next six months of the 'prudent monetary policy' currently in place.

But while much of the attention was focused on the exports sector because of the slowdown in Europe, the real danger may lie much closer to home.

'There are a lot of sub-indicators that have been masked by a positive GDP number,' explains Alistair Thornton, China economist with IHS Global Insight.

Chief among these is the troubled state of the real estate sector, which accounts for 6-7 per cent of GDP.

In December, prices dropped for the third month in a row. Developers' inventories of unsold properties at the end of 2011 were 26 per cent higher than a year ago. And new home sales slowed significantly in the second half last year finishing up only 3.9 per cent, against a 12.1 per cent rise in the first half...

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Martin Koh/ Sherry Tang
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