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China's housing slowdown threatens economic growth

Concerned over the runaway growth of its housing market, China imposed new laws to slow speculation. But trying to curb a potential housing bubble may hurt the country's high growth.

Kai Ryssdal: There have been lots of numbers coming out of China this week. One of the biggies was a slight slowing in the growth rate of the world's second biggest economy.

But the one that caught our ear was this: Last year, real estate investment in China was worth $200 billion more than what the U.S. put into its real estate market during the height of the bubble here. So, if you're thinking "uh-oh," join the club.

From Shanghai, Marketplace China correspondent Rob Schmitz reports.


Rob Schmitz: The European debt crisis. The U.S. debt downgrade. And yet, through it all, China has been one of the economic bright spots in the world. And the real estate market has been a bright spot in the Chinese economy. But not anymore.

At this real estate office on the outskirts of Shanghai, only one agent among seven is on the phone. The rest are browsing the Internet. Real estate agent Liu Bo says it’s been quiet ever since the government limited the number of properties each person can buy to two.

Liu Bo:  Our sales are down, and it doesn’t look like they’ll rebound anytime soon.

The runaway growth of the housing market scared Beijing -- so the country imposed new laws to slow speculation. If China reverses that course, Liu’s sales might pick up, but it could create another housing bubble. If the government continues to curb real estate speculation, the resulting slowdown threatens to drag China’s economic growth to below 8 percent. That’s an ominous mark in a land where eight is a lucky number.

IHS Global Insight economist Alistair Thornton says China’s government considers GDP growth under 8 percent as dangerous.

Alistair Thornton: There’s been a feeling that 8 percent has been necessary each year to ensure that employment and social stability holds up. The generalized fear is that should growth dip below that magic number, things start to unravel.

Thornton says China’s property market slowdown could shave two percentage points off of China’s GDP growth this year. If that happens, China’s economy would be expanding by 6 or 7 percent -- enviable by Western standards. But in China, that’s what’s known as a hard landing.

In Shanghai, I’m Rob Schmitz for Marketplace.

About the author

Rob Schmitz is Marketplace’s China correspondent in Shanghai.

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