OECD Notices China Has a Problem

And they don't mince words.

Real-Estate Risks Overshadow China’s Economic Prospects, OECD Report Shows

“While the exit of small developers would not pose a problem, the failure of large promoters could put some bank lending at risk, perhaps triggering negative chain reactions,” the Paris-based OECD said in a report today. “A key risk is an overly quick liquidation of unsold property.”

And there is a lot of unsold property, not including up to 64 million empty apartments.

China’s economy, the world’s second biggest, will expand 8.5 percent next year even as export growth is pulled down by weak demand and a decline in the nation’s competitiveness, the report said.

Elsewhere in Asia Pacific, Australia has scope to cut interest rates should Europe’s sovereign-debt crisis stall global growth, the OECD said, a scenario investors already are betting on.
If downside risks to the international economy materialize, “monetary policy should be eased significantly to sustain demand in the context of moderating inflation,” the OECD said. Australia’s government could also boost spending, it said, though that would delay a pledged return to a budget surplus in 2012-13.

So, imagine this. Australia cuts rates, but that only applies to the domestically funded 2/3 of a mortgage. International appetite for Australian mortgage debt will not necessarily increase proportionally to track the same rates. In terms of funding mortgages, Australia's central bank is not in full control.