Rising and falling imports has no net effect on GDP. If imports fall, then investment (and/or consumption) falls in lockstep.

The 8% unofficially declared official bottom line is believed to be necessary to stave off massive unemployment and possible social unrest.

But massive layoffs are beginning as we speak, from virtually all private sectors (2/3 of total GDP). Latest report from top leadership says 38% of medium to small businesses are on verge of collapse. This is not just the export sector. There is a 2.5 years of supply of unsold new homes at current snail pace. Implications for pending layoffs in construction and 40 other real estate related industries are obvious. Real estate accounted for 20% of GDP in recent years.

In the first two quarters of 2008, auto sales in Beijing registered 20+ percent growth year over year. In the third quarter it went to negative 1.4% y/y. That’s how dramatic the change of mood is. Domestic consumption is imploding. It’s only going to get worse from here.

When virtually every sector of the Chinese economy is in contraction, it is still widely believed that government spending alone will drive growth rate to 5-6%, even 8%. Amazing.

A couple of weeks ago there were opinion polls on Sina and QQ (I think it was those two), asking whether Government should intervene and support the failing housing market.
The answer was a whooping NO! from app. 70 percent of respondents.

And no wonder. Young people in Shanghai for instance who are not born to rich parents or have an in to the vast corrpution gravy train… they are never, ever going to get a decent apartment at today’s price levels.

Twofish,

My experience is that rural folks move to towns and cities within their own regions, and urban folks move to other urban areas, especially the coastal cities. Not 100%, but a large factor.

I don’t think so. One warning sign that prices really shouldn’t be that high is if you have to think about reasons why prices should be that high.

The problem with this sort of logic is that if there is some sort of shock, then everything falls apart. Lower earnings -> lower property prices -> lower earnings -> etc. So high prices based on future expectations are very dangerous because the bottom can and will fall out when future expectations change.

I think it is reasonable to assume that the property markets in China will continue to crash. My relative optimism on the Chinese economy is that I don’t think you will have a crisis when the markets crash. This isn’t to say that everything will be lovely, but “crisis avoidance” is important since avoiding crisis means that you have time to think and react.