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A burst in the Chinese housing market would benefit the U.S.

Chinese people form lines outside of a construction site waiting to buy quality apartments on March 2, 2005 in Shanghai, China. More than five thousand buyers rush to scramble for 178 apartment units. The price of the real estate in Shanghai has soared rapidly in recent years.

TEXT OF STORY

STEVE CHIOTAKIS: There's a report out from the International Monetary Fund on real estate prices in China. It says the housing markets in large Chinese cities are becoming more and more disconnected from reality. As a matter of fact, some home prices in Shanghai and Beijing are on-par with lofts in Manhattan. We've already seen what a U.S. housing bubble does to the global economy. But what about a Chinese bubble?

Here's Marketplace China Bureau Chief Rob Schmitz.


ROB SCHMITZ: First of all, let's get this straight: if there is a bubble in China, it hasn't yet burst. In fact, much of the IMF report actually says China's in good shape. But the IMF's crystal ball has been cloudy in the past. So let's assume China's property market is in trouble, like some economists say. If there's any impact on the U.S., says economist Michael Pettis, it'll start with China's real estate developers.

MICHAEL PETTIS: You've heard all the cliches of half of all the building cranes in the world are in China. I don't know how true that is, but real estate has been a huge generator of growth in China.

Pettis says a property downturn in China might mean all those cranes would disappear from the skylines of cities across the country.

PETTIS : If it has a big impact on real estate development, then it would have a big impact on commodity prices.

In other words, shipments of building materials would slow. Less demand would mean the prices of copper, steel, aluminum, you name it, would tank. And, surprise, that would actually be great for the U.S. Cheaper building materials equals better business. Pettis says it'd be like a big tax cut.

In Shanghai, I'm Rob Schmitz, for Marketplace.

About the author

Rob Schmitz is Marketplace’s China correspondent in Shanghai.

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