Global construction industry needs full recovery in China

While growth in China is slowing, the real estate market continues to show signs of a recovery.  As almost one-third of the economy in China is related to the construction sector, both residential and commercial, this will be bullish as much of the global construction industry depends on a strong China now.

Image Courtesy Flickr User Mararie: http://www.flickr.com/people/mararie/

Wen's comments on Chinese real estate sent markets lower

Growth for China in the second quarter of 2012 was just reported at 7.6%, the lowest in three years.  Previously, growth in the People’s Republic had registered at an annual rate of 10%.  It is not mere coincidence that the real estate market in China has been in a slump along with the falling growth rate for the country.

But there appears to be turning around.  In another sign of recovery, a property just sold in Beijing for a record price.  The local press in China “dubbed it the ‘King of all Sales’” for the plot of land selling for $413 million.  The previous record was set in 2009, in the middle of the real estate rise.

According to GK Dragonomics, prices are still about 20% below the peak in China, however.  But recovery is being registered across the country.  This is much needed for not just economic growth in China, but around the globe.

As noted in an article in Bloomberg Businessweek, Beijing: Between a Bubble and a Hard Place,” the importance of the real estate sector in China cannot be understated.  From the Bloomberg Businessweek article by Dexter Roberts: “Real estate remains the primary driver of China’s economy, even beating out the export sector.  When combined with associated industries including steel, cement, and household appliances, real estate accounts for about 30 percent of China’s $7.5 trillion GDP, estimates Tao Wang, head of China economic research at UBS Securities.”

As it is the world’s largest importer of commodities such as copper and iron ore and the world’s largest exporter of investment capital, so desperately needed now in Europe and the United States, the global construction industry needs for China’s to recover.  Real estate prices in other countries will not rebound unless the domestic economy is strong. 

For that, China is needed to buy goods and services to keep industry healthy and to invest capital to keep interest rates low.  The record sale in Beijing is a bullish sign for international real estate and the global economy.