China is showing scary signals

Bloomberg.com: Economy

China Cuts Home-Sales Tax as Property Slump Deepens Slowdown
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By Eugene Tang and Luo Jun

Dec. 17 (Bloomberg) -- China will reduce a tax on home sales to stem a property-market slump that may drive the world’s fourth-biggest economy into the deepest slowdown since 1990.

Sale profits, rather than prices, will now be taxed, the State Council said in a statement on a government Web site.

The measures “are much more significant than those announced in the past few months” and, with interest-rate cuts, are likely to stabilize the property market, said Peng Wensheng, head of China research at Barclays Capital in Hong Kong.

Falling home sales are undermining construction and domestic consumption just as export demand collapses because of recessions in the U.S., Europe and Japan. Building is the biggest driver for China’s expansion, contributing a quarter of fixed-asset investment and employing 77 million people.

The levy will be waived on properties sold two years after purchase, down from five years, the State Council said. The new rules apply for one year, it added, without saying when they take effect.

China’s economy may grow as little as 5.5 percent next year, the weakest pace since 1990, according to CLSA Asia Pacific Markets. That’s less than the 8 percent needed to create jobs and maintain social stability, according to China Banking Regulatory Commission Chairman Liu Mingkang

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