Unsold building left incomplete in Hainan province (Source: Bloomberg)
The bottom is falling out of the China property bubble, evidenced by a continuing drop in prices:
China's home prices fell in January from December, marking the fourth monthly fall in a row and showing that a policy-driven property market downturn is deepening, which will add to worries about a hard landing in the world's second-largest economy.
Average new home prices across the country dropped 0.2 percent in January from a month earlier, compared with a decline of 0.3 percent in December and a drop of 0.2 percent in both November and October, according to a Reuters weighted average home price index based on official data released on Saturday.
Prices fell in January, month-on-month, in 47 of the 70 cities monitored by the National Bureau of Statistics, and remained unchanged in the rest, a sharp contrast with a year ago when new home prices fell in only three of them.
Chinese workers have launched into protest as they're squeezed by falling assets and rising cost of living:
Consumer prices in the world’s second-largest economy rose by an unexpectedly strong 4.5 percent over a year earlier, up from December’s 4.1 percent, data showed Thursday. Food prices jumped 10.5 percent, accelerating from the previous month’s 9.1 percent rate.
“It makes us more concerned that the risk of inflation is not going away,” said Nomura economist Zhiwei Zhang. Among Chinese planners “it will reinforce concerns about inflation that already were there.”
The price spike could complicate the communist government’s efforts to revive growth that slowed to a 2 1/2-year low of 8.9 percent in the final quarter of 2011.
The
global impact of this reduction in purchase power could propel China onto
a hard landing, preventing it from covering the sharp decrease in American
gasoline consumption:
Retail gasoline deliveries, already well below 1980 levels, have absolutely fallen off a cliff. […]
Deliveries steadily rose to a peak of 67.1 MGD in July 1998, declined marginally in the 2001-2 recession and then surged to 66.8 MGD in August 2003. If we just look at one month--say November--then we see that deliveries remained in a remarkably consistent channel from 1994 to 2008, between 54 MGD and 63 MGD, with the higher numbers occuring in the "peak bubble years" of 1998 and 2003.
In 2010, gasoline deliveries declined to the low 40s--literally falling off the charts. In November 1983, deliveries were 51.1 MGD; in November 2010, they were 42.8 MGD, and in November 2011 they were 30.9 MGD.
As real demand falls, the price of oil hovers on the hot air of
financial speculators:
Historically, financial speculators accounted for about 30 percent of oil trading in commodity markets, while producers and end users made up about 70 percent. Today it's almost the reverse.
A McClatchy Newspapers review of the latest Commitment of Traders report from the Commodity Futures Trading Commission, which regulates oil trading, shows that producers and merchants made up just 36 percent of all contracts traded in the week ending Feb. 14.
That same week, open interest, or the total outstanding oil contracts for next-month delivery of 1,000 barrels of oil (about 42,000 gallons), stood above 1.486 million, near an all-time high. Speculators who will never take delivery of oil made up 64 percent of the market.