The Chinese authorities have succeeded in making good on their promise to lower property prices, but this bid to make housing affordable for the greater half of the Chinese population mightprove particularly costly for the Chinese economy as a whole. The residential sector is a major contributor of short-term economic growth in China, and accounted for an estimated 6.1% of its total GDP in 2010. Falling prices have already dragged down investment in the country’s real-estate market, and are expected make a similar dent in its demand for steel. Given the already dismal global economic outlook, a sluggish Chinese economy could then setoff more alarms than fireworks.

The drop in housing rates can be witnessed throughout the Chinese expanse, from large, major cities such as Shanghai and Beijing (here rates fell another 0.3% over a single month alone), to the relatively less populated second and third-tier ones. The country has instituted a series of regulations, whereby raising interest rates, and introducing local restrictions under which only those city residents who have been paying district or city taxes for a certain period of time are allowed to purchase housing in the said locality; these moves it intends would help take some pressure off of the overheated property market.

These falling prices also carry a strong implication for the greater world economy. The Chinese are the major buyers of machinery, and other housing-related (raw) materials from markets as far and wide as Japan, Australia, and Latin America. Local manufacturers are already citing worrying drops in demands for construction equipment, and doubt that they’ll be able to meet annual sales targets. The contagion shall then surely pass onto other markets whose growths are primarily fueled by exports, of which China constitutes a lion’s share.

This overarching influence of the Chinese Property Market then leads analysts to believe that such downward revisions in housing prices may not be allowed to continue for long. Persistent deductions in prices at various developments have already irked many buyers, and sparked protests as homeowners see their treasured equity vaporize at an increasing rate. The Premier, however, seems adamant to see these so-called corrections through; and given the track record of Chinese officials, a policy reversal might be somewhat of a long shot. Regardless of the status quo, developers, both local and foreign, remain upbeat about the long-term potential of the Chinese property market. They trust that once interest rates start to fall to reasonable levels sometime next year, the market will reveal its actual value, and prices will soar again. The Chinese housing market will eventually stage a comeback since the present state of affairs too is somewhat of a show; artificially orchestrated, well put-on.