Irony on. Look at it how bad the comrades steer the things in China, there is a huge bubble on real estate market. They are building empty cities for millions! At least that's how quite some articles on this topic in the western media sound (perhaps because a few decades ago we did start fueling China's growth so much, that nowadays we are a little envy and have to use every topic to kick into China a bit).
But now frankly, what's happening with real estate market in the second largest economy in the world?
I recall, first time i did read about overheating on the chinese housing and commercial property market, was somewhen in 2005 or 2006 and the article was predecting burst of it in 3 years. Obviously did not happen. But what was and still right is, that there is and constantly growing property bubble. The story began with cheap credits policy for construction projects, launched in 2003 under Wen Jiabao's policy. So the chinese state owned banks did start throwing cheap money onto the market, provincial governments did supply cheap long term land leases (it was their own interest, because the construction helped to boost the province GDP and the local government will easier meet the GDP growth goals set by the planners in Beijing) and heavily subsidized private (but also state) developers could start the construction frenzy.
This was a logical policy - if you have the funds, have to sustain jobs (after the demand drop in EU and US) for migrating rural workers, have overpopulated cities on the east coast and don't want to see the GDP growth curve dropped downwards, there is barely something better. You can distribute the money to people to boost the consumption, but with propensity to save in China, it would hardly work, so you are left with pumping the fixed investment (try to google the comparison of government stimulus done after 2008 financial crash in the USA and China - mere 6 % of GDP compared to over 30 % of GDP!).
The construction boom is not just about housing, but also commercial properties, highways, bridges and other infrastructure. But probably nobody makes market studies on usage of new highways. All is focused on the results of China's housing and commercial buildings construction race, catastrophic predictions are set, parallel with the real estate market collapse in the US are said.
A recent nationwide research in almost 700 chinese cities came with figure, that almost 70 million (!) flats or houses are without tenants, so empty (but not necessarily unsold). This leads to a fact, that we speak here about an over-capacity bubble. So the nature is somewhere else, than of the already bursted bubble in the US. But the excess in supply, doesn't lead to pricing drop. The market built in assumption is that, prices are rising whenever and whatever happens. And why not, if that has been happening for the last 10 years and with such a pace (however the rise of prices growth slows down, recently Shanghai seen stable prices).
It's obvious, that if in the beginning was an intention to improve housing situation of low-income chinese workers, it failed. Large portion of the properties remain in hands of developers (do you see the moral hazard here - basically using public money for low ROI activities just for speculation) or were sold to speculators (both to corporations investing in real estate and private investors). Minor part of newly built flats are really used for living. Properties sold to private entities were mostly paid fully or with a very high downpayment - forget about 0 % or 20 % down. Rentals are not that common, as at the time of potential future sale, an untouched property is more valued. Another aspect of putting sometimes savings of whole family into real estate in China is that, there are not many other opportunities to invest as a Mainland citizen - savings accounts interest rates are very low (comparing to China's relatively high lending rate of around 6 %) and gives a negative real interest. Investment into domestic shares is limited and investment into shares abroad is hardly doable at all.
The result of the whole are city quarters and whole cities built for millions of people (often called ghost cities), but nearly without inhabitants. The inventory in these properties is somewhere around 10 % of country's GDP, so the conservative estimates. The demand is now more or less just speculative. And the pricing is soaring and soaring, at certain locations like Shanghai, Qingdao, Shenzhen, Ningbo or Hangzhou, one would need around 50 years average salary to buy an average size apartment. This is unsustainable.
The central government in Beijing realizes the problem and tries to cool down the market since 2010. There was a row of orders to the 4 largest banks in the country to increase their required reserves - currently over 20 % (!). A property sales tax of 5 % applies for sales made after less than 5 years of property ownership. However all in all, not very successful. The key to the success here lays in stopping the capital flow from the state-owned corporations into the real estate market.
When will all this burst? At the moment, when the holders of the "papers" recognize the losses or when the speculators realize, that there can be losses. And that can last, because the government's subsidies were heavy enough.
Good point for the global economy is, that the investments into the market were mostly domestic. To make it simple, almost all the money belong to the government thru state owned banks, state owned developers, state owned corporations, which did invest into the properties or granted loans for the construction. Burst of the bubble will result mainly in need to recapitalize the state owned banks. One can argue about the figure, but China has quite some "water" to put even a very large "fire" out. Moreover China did large bailouts of the banking sector in the past. Who will loose will be private investors - both chinese or foreign. The value of their flat or house, which was purchased just as investment (speculation) will fall down.
What i expect is "fire" inside China, but I don't think that we will see global financial turmoil as we have seen in 2008 after the real estate market collapse in the USA. China is a centrally planned economy and has command and capacities to deal with financial earthquakes. And as said, the "bad papers" remained almost solely inside China, more or less in the hands of the state. What we will have (and it will be the primary effect in the global scale) is a slump in global commodities demand. China construction industry is the world's largest buyer of a bunch of commodities, which after a stop or sharp slowdown in construction activity can go through a major demand drop (and not only that, think about break-bulk shipping industry f.e.). I'm thinking now of Australia, which is sailing for quite some time on the boat of growth together with Beijing. Any larger problem in China would directly affect australian exports and thus the whole economy. China and Australia are too much economically connected. Also other Asian and African countries would be negatively affected with China's property bubble burst. Europe likely to be affected rather less. At least something "positive" after the neverending drama with Greece and other south Europe heavily indebted countries.