China forecasts 20% property price drop in 2011

Chemical companies, Consumer demand, Economic growth, Leverage

China OECD Nov10.pngChina’s government tends not to like surprises. Its usual tactic is therefore to talk about policy changes well in advance. And this is what seems to be happening with regard to the real estate bubble.

Back in September, premier Wen Jiabao said it would probably take 2 – 3 years to cool the bubble properly. Now a new report from Beijing’s Renmin University of China, prominently reported in the national media, warns property prices will “decline almost 20% next year, due to continuous government cooling measures on the nation’s red-hot real estate market“.

Talk has also been accompanied by action in terms of rises in bank reserve requirements and an interest rate rise. More measures are undoubtedly on the way. Equally, the central bank clearly warned back in July that “China’s future economic growth will definitely gradually slow down”, as it moves to “carry out structural adjustment and transform our development model“.

Already, as the chart above shows, the impact of existing government measures has caused the OECD’s leading indicator for China to forecast growth will go below its long-term trend (100). Those hoping for continued high growth rates next year are therefore effectively arguing the government will fail in its central policy objective. To the blog, at least, this looks an unlikely outcome.

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