China ducks US recession

In the international press a favorite topic is how the problems in the United States - the sub-prime crisis - must definitely have a major and negative effect on China.

It is true the real estate problems in the west will get worse before getting better. Western banks have bought around $1,000 billion of collateralized debt obligations - which is a nice way of saying securitized sub-prime mortgages which is a misleading way of saying shonky loans on property that should never have been made in the first place and are almost certainly not recoverable.

And it is a given that UK and US base rates will fall further in early 2008. Probably eurozone rates as well.

So in the United States - where retail price inflation soared to 4.3% in November - there will be more falling house prices, duff loans and high inflation which may see the United States in a minor recession with the world’s largest economy contracting for two successive quarters. And, probably, the US dollar will fall even more in 2008.

There will, of course, be a flow-on effect which will impact of Europe to a certain extent and China to a lesser extent.

But to make the leap that there will be a major flow on effect in the real estate market is a bridge too far.

Indeed, the best forecast is that this minor United States recession will allow China to catch up with its booming economy and get it and its real estate prices under some sort of orderly control.