Reserve Bank of Australia researchers have warned that Chinese policymakers may not be willing to stimulate the nation's slowing property market as much as needed, in a glaring warning for Australian commodity exporters.
In the central bank's quarterly Bulletin, the RBA noted that the latest slowdown in the Chinese property market has coincided with a pronounced increase in property developer leverage.
This means the market remains a key risk to Chinese economic growth, financial stability and to the imports of resource commodities. The latter will sound warnings bells for Australia, which counts China as its largest trading partner.
The outlook for the Chinese property market, particularly for new property construction, is of relevance to Australia given the sector's use of raw materials such as such as iron ore and coking coal, the RBA report says.
Overnight, the price of iron ore fell below $US55 a tonne for the first time since 2009 as concerns about an oversupplied market as big miners lift production and waning Chinese demand weighed.
Several analysts have recently warned of a fall to around $US50 a tonne before a price floor can be found.
"While the process of urbanisation in China is continuing and will provide a level of support for construction activity in coming years, the property market is likely to remain weak for a time," the RBA research concluded.
"Various levels of government have taken actions to support activity and confidence in the market."
There is scope for the relevant authorities to provide more support if required, the RBA said, however, "the goals of deleveraging and achieving sustainable growth may limit the extent to which policymakers are willing to provide further stimulus to the sector."
The RBA research noted that the current weakness in the property market is different from previous downturns because there are indications that developers may be much more highly geared than in the past, contributing to financial stability risks.
"Residential property cycles in China have been larger than cycles in commercial real estate, and may pose risks to activity and financial stability," the RBA said.
Property development, and especially residential property development, represents a large portion of China’s economic activity and has made a significant contribution to the nation's overall growth in recent years.
The warning comes as new data from China's National Bureau of Statistics showed the average price of new homes in 70 Chinese cities fell further in February amid sluggish demand due to the Lunar New Year holiday and fears among potential home buyers of more price cuts.
The pain in China’s property market is likely to continue despite Beijing’s efforts to help the economy, analysts said, noting that so far only major cities such as Beijing and Shanghai are showing signs of recovering.