China's economic problems greater than reported

A labourer (R) carries materials at the construction site of a new housing project in Hefei, in eastern China's Anhui province on February 18, 2012. Home prices in more than two-thirds of China's major cities continued their slump in January from a month before, the government announced, as moves to cool the market continued to bite. CHINA OUT AFP PHOTO (Photo credit should read STR/AFP/Getty Images)

(Money Watch) Home prices in China continued to decline last month, according to official statistics, despite two years of government efforts to stabilize them. This is just one of many indicators that the world's second largest economy is feeling the impact of the bursting of the nation's real estate bubble.

A government survey of average prices in 70 cities released last week showed prices declined in 46 cities and rose in just three. For the month, 43 cities showed declines in prices compared to March, while 46 cities showed declines on a year-on year basis, according to the National Bureau of Statistics.

A new report by Patrick Chovanec, associate professor at Tsinghua University's School of Economics and Management in Beijing, lays out the picture in stark terms:

  • Year-on-year sales in the first quarter of 2011, for all real estate, were down 14.6 percent.
  • Residential property sales were down 17.5 percent
  • Office sales were down -10.2 percent
  • Sales in January-February fell 20.9 percent overall, -24.7 percent for residential.
  • Total amount of floor space "for sale" was up 35.5 percent, compared to the same date last year
  • Floor space of residential units "for sale" grew 47.4 percent.
  • At the end of 2011, total floor space "under construction" was roughly 4.6 times the floor space sold
  • A year and a half worth of excess inventory is hidden somewhere in the pipeline
  • In April, starts for all types of real estate fell 14.6 percent year-on-year and 27 percent month-on-month
  • Housing starts fell -14.4 percent year-on-year and -23.4 percent month-on-month
  • Office starts fell -21.0 percent year-on-year in April, and -45.1 percent compared to March
  • Retail property starts fell -18.7 percent year-on-year, and -36.8 percent compared to March
  • Land sale revenues in April were down -54.7 percent compared to April last year
  • Foreign funding for property development was down -91.4 percent in March and -80.8 percent in April, compared to the same months last year.

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It is almost certain the situation is worse than reported. China is notorious for the inaccuracy of its economic statistics. Li Keqiang, who is expected to be the nation's next premier, told the U.S. ambassador that the official gross domestic product figures are "man-made" and that he regarded them as being "for reference only." Last week, China reported that its GDP growth for the second quarter of the year would likely slow to 7.5 percent. Whether or not this is a reliable number, it is still sharply off the 8.9 percent GDP growth claimed by the government for that last three months of 2011.

Other business indicators would seem to confirm that the economic slowdown is greater than reported. Total vehicle sales in China were down 1.3 percent in the January-to-April period, the worst showing since 1998 when deliveries fell 1.6 percent, according to data compiled by the China Association of Automobile Manufacturers. The association also reported that many of its members were carrying more than 45 days of inventory at the end of April. This is already causing severe price cuts and has meant several automobile factories have had to stop production for a period.

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    Constantine von Hoffman is a freelance writer and writing coach. His work has appeared in outlets such as Harvard Business Review, NPR, Sierra magazine, Brandweek, CIO, The Boston Herald,, CSO, and Boston Magazine.