Subject: Fate of China property is global concern - FT
From: "Michael Andrews" <[email-masked]>
To: "Hunter Biden" <[email-masked]>, "Devon Archer" <[email-masked]>, "Eric Schwerin" <[email-masked]>, "Chris Heinz" <[email-masked]>, "Ronnie Mainieri" <[email-masked]>, "Curt Hastings" <[email-masked]>
Date: Tue, 31 May 2011 15:16:18 -0400

I will see what I can pick up on the research side. MPA

Fate of China property is global concern
By Jamil Anderlini in Beijing
Published: May 31 2011 18:08 | Last updated: May 31 2011 18:50
It was not until the Chinese government decided to privatise much of  
the country’s urban residential housing stock in 1998 that most people  
in China had even considered the possibility of owning their own home.

While official figures show 89 per cent home ownership in the cities –  
a figure disputed by many – analysts say Chinese real  
estateconstitutes the single most important sector for the health of  
the entire global economy today.

“Real estate and housing construction pervade the entire mainland  
[Chinese] growth model,” says Jonathan Anderson, economist at UBS, the  
Swiss bank. “They are the most important determinant of commodity  
demand, a very big marginal driver of China’s external surpluses and  
indeed a crucial key to real understanding of household balance  
sheets, saving and investment.”

A visit to any Chinese city, with its forests of cranes and endless  
construction sites, should be enough to convince most casual observers  
ofthe importance of real estate in what is now the world’s second- 
largest economy.

Whether China’s real estate market is a bubble that could pop,  
knocking out Chinese growth and shaking the world’s economy, is a  
question that is being asked by everyone from Brazilian iron ore  
traders to hedge fund managers in the City of London.

And while there is no consensus among economists and analysts over  
whether rapid price rises and a big construction boom do constitute a  
bubble, there is serious concern among some Chinese officials and  
recognition from almost everybody that the current levels of growth  
are unsustainable over the long term.

By some estimates, China consumes up to 50 per cent of key global  
commodities and materials such as cement, iron ore, steel and coal,  
and Chinese real estate is the main driver of that demand.

For example, construction directly accounts for about 40 per cent of  
Chinese steel usage.

But when home appliances, property-related in frastructure and other  
property-dependent sectors are included, as much as two-thirds of  
total steel consumption in China is broadly driven by property spending.

Since last year the Chinese government has been trying to rein in  
soaring real estate prices and limit overinvestment in the middle- and  
high-end residential developments that have proliferated across the  
country.

China property prices map

FT Interactive: Chinese real estate is crucial for the health of the  
global economy. This map shows how the price of property has risen  
across China from 2000-2010
At the same time, Beijing has launched an unprecedented campaign to  
build tens of millions of state-subsidised apartments to provide  
housing for the majority of Chinese citizens who can no longer afford  
to buy or rent their own home in the cities.

This plan is intended to continue the investment and construction boom  
even as the commercial housing sector slows, but it is also an attempt  
to address the widening disparities in Chinese society that have  
partly emerged as a result of such rapid growth.

Indeed, the rise of the Chinese real estate market has been  
accompanied by a range of unintended side-effects.

Some analysts estimate that actual home ownership in big cities is  
probably closer to 45 per cent than the official 89 per cent figure,  
once the huge rural migrant population living in urban areas is taken  
into account.

Local governments rely heavily on land sales to real estate developers  
for a huge portion of their revenues and the requisition of land  
belonging to ordinary citizens is probably the single biggest source  
of serious social unrest in the country.

While official data are often hard to interpret and recent readings  
show a mixed picture, the fate of the Chinese real estate market will  
have an impact on everyone from Australian miners to German exporters  
to US consumers.

“From a macroeconomic perspective if you don’t understand Chinese  
property, you probably don’t understand China,” says Mr Anderson.

“And if you follow these commodities and industries [such as metals,  
cement, iron ore, coal, auto parts, construction equipment, power  
generation machinery etc], you are well advised to have the right call  
on the mainland property markets.”