worrisome… | July 3, 2012

http://online.barrons.com/article/SB50001424053111903857104577467200405790354.html?mod=BOL_hpp_cover#articleTabs_article%3D1

Barron’s Cover

| SATURDAY, JUNE 30, 2012

Falling Star

By JONATHAN R. LAING

THIS ALL HAS OLD CHINA hands like Peterson Institute economist Nicholas Lardy concerned. He points out that last year residential construction accounted for 9.2% of Chinese GDP. Compare that with 6% in the U.S. at the peak of its housing boom in 2006. Among major countries, only Spain has hit that level—right before the housing collapse in that country.

Lardy and others fear that a major decline in residential real estate and underlying property prices could severely damage the Chinese economy. (Average new-home prices in some 70 major Chinese cities fell monthly in the eight months through May.) A falloff in demand for steel, cement, and copper would lead to heavy layoffs. He reckons that some 25% of all Chinese steel consumption goes into residential real estate.