Residential home prices are dropping in major Chinese cities after two decades on the rise, raising concerns about a potentially rapid slowdown of the nation’s economic growth.
While the price drop is dampening unwanted real estate speculation, rising real estate prices have been a major driver of growth in China by boosting demand for steel and cement and encouraging investment. Municipalities and provinces depend on rising prices for land sales as well to fund infrastructure projects, according to this Wall Street Journal article.
World Bank economists warned at a Beijing press briefing Wednesday that the real-estate bubble presents a major risk to China’s economy. A new analysis shows real estate prices fell 4.9% in April from a year earlier in nine major Chinese cities. Last year prices in those cities rose 21.5%.
If the Chinese housing market slows faster than expected, markets that export heavily to China could be hit hard. Many Latin American and African economies have shifted their focus toward Chinese demand for their raw materials, and many Western firms are looking to Chinese consumer demand to prop up sales, the Wall Street Journal reports. Also, companies such as Caterpillar Inc. are doing business in China in areas such as infrastructure that could be affected.