China's Regional Governments Suffer Economic Slowdown

Land sale revenues for local governments in 25 cities declined 11 percent between January and November, compared to the same period 2010, to a combined 950 billion yuan, according to the China Index Academy.

"Sharp declines in land revenues have put enormous financial pressure on local authorities," said Li. "Right now, local governments are more worried than developers."

...A source at a state-owned property firm in one provincial capital told Caixin that local agencies don't have enough money to cover basic healthcare costs or pay teachers.

"City officials are coming to us and asking us to buy land to bolster the land market," said the source, who declined to be identified because of the issue's sensitivity. He said his company in November complied with a local officials' order to buy a 900,000 square-meter site "whether we wanted to or not."

... _Caixin

The problem with this slowdown in property and housing sales, is that the repercussions tend to echo all the way down the Chinese economy. Real Estate is just the tip of the iceberg.

If investment actually declines — which is hardly unthinkable based on other property booms and busts — the picture is even worse. For instance, if property investment falls 10% (in real terms) in 2012, GDP growth drops to 5.3%. Even if investment grows at 10% (half last year’s growth rate, in real terms), GDP still drops to 7.9% — below the magic 8%. You can plug in any numbers you like, and see what you get. The point is, real estate has been a huge driver of growth, and even a modest real estate slowdown matters — it can’t just be brushed aside as though it were of minimal consequence for the broader Chinese economy.

I also want to emphasize — before we get totally preoccupied with the fate of the property bubble — that the property story is really just one aspect of a much broader investment boom that has been driving the economy. If real estate accounts for 10-13% of GDP, investment in fixed assets accounts for nearly half (the all-in sum for fixed asset investment, including inputs, that was released this week adds up to an amount equal to an astounding 64% of GDP). The health of the property sector is particularly important in China because of the pervasive role that land values play in underwriting lending, but the risks to China’s economy extend far beyond the market for homes and offices. For China, real estate is just the tip of a much larger iceberg, one that I’ll explore in my next “China data” installment. _Chovanec

It is clear that the nominal GDP numbers coming from China do not provide the substantive information one needs, to judge the health of the Chinese economies -- both regional and central. It is most unwise to take Chinese governmental figures at face value.