Real estate sector drives Chinese economy

Recently released official data indicate continued growth in construction suggests that Chinese government measures to cool the housing market have not yet seriously cut into the nation's economic expansion, though property sales fell in May for the first time since December 2008.

The main driver of China's growth right now is the property-led investment boom. Figures published by the National Bureau of Statistics provided the first official indication of how buyers and sellers of property have responded to the new policies the government rolled out in mid-April to address public discontent with high housing prices. Since then, worries about the property sector have pushed down Chinese stock prices, as well as prices of raw materials like copper and steel that are heavily used in construction.

Property sales fell in May but construction continues apace. While there was no sign of a major turnaround in prices in May, nationwide sales of property were down 3.4 per cent from a year earlier in terms of floor area, the statistics bureau's figures showed. May's sales volume fell 15.8 per cent from April and declined 25 per cent in value terms – actually a more modest decline than some earlier estimates by private real-estate research firms.

The government's main purpose has been to avoid speculative purchase of housing and rein in price rises, and to avoid slamming the brakes on a construction boom that has helped keep the nation's economy humming. Early evidence indicates property developers have not scaled back their building plans: New construction starts in May were double last year's levels, and are up 72.4 per cent so far this year, while developers' purchases of land were also up 44.1 per cent in May.