In fact, despite the policy-induced slowdown in activity, the Chinese property market remains on a wildly unsustainable path. Developers actually completed some 11 million properties last year. In other words, even in the sector's most difficult year on record, developers still managed to build more than enough properties to meet the year's increase in underlying demand. More alarming is that the number of completions rose for a sixth year in a row.

If completions continue rising at the recent rate, in five years the building sites of China will be turning out 19 million new properties each year. Barring some unforeseen surge in the pace of urbanization, that would leave a colossal glut of housing that could only be sold if prices collapsed.

You might wonder whether that would actually happen. Wouldn't the property industry, seeing that supply was on course to outstrip demand, shift direction of its own accord? Perhaps it would. But there are many reasons not to be sure. Plenty of industries in China have gone through waves of boom and bust in recent years.

Those that have, such as automakers and steel smelters, share many characteristics with the real estate sector. They each had countless small players in the boom years, all trying to raise their market share. There were long lags between the launch of investment projects and their completion so that today's market supply conditions proved an unreliable guide to the future.

The difference is that, because of its size, a collapse in the property sector would have wrenching implications for the whole of China's economy and beyond.

The upshot is that the correction needed to return China's property sector to a sustainable path has barely started. Not only is now not the time for policymakers to be thinking of loosening the property market controls, but that moment is still probably years away.

The author is chief Asia economist at Capital Economics, a London-based independent macroeconomic research consultancy.

(China Daily 02/28/2013 page9)