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The negative data flow continued to pile up overnight in China as the property market overheats, commodity demand slows and PMI shows a slowdown in the economy. 

CNBC and the Financial Times are reporting a continuing slowdown in property markets and the potential for problems worse than in the United States prior to 2008:

“The problems in China’s housing market are more severe than those in the US before the financial crisis because they combine a potential bubble with the risk of social discontent, according to an adviser to the Chinese central bank.

Li Daokui, a professor at Tsinghua University and a member of the Chinese central bank’s monetary policy committee, said recent government measures to cool the property market needed to be part of a long-term push to bring high housing prices under control.

He added that there were still signs that the economy was overheating and recommended modest increases in interest rates and the level of the currency.”

The China Manufacturing PMI survey showed a weaker than expected reading of 52.7.  Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC said:

“The slowdown in the headline manufacturing PMI suggests that the overheating risk is likely to ease as tightening measures filter-through. That said, we see robust economic growth without double-dip risks not least because of massive existing infrastructure investment and resilient private consumption.”

Zhang Liqun, a government economist was not quite as optimistic sounding:

“The fall may indicate the economy is slowing from its fast pace of growth”

This slowdown in the economy is perhaps best reflected in the commodity markets.  The Journal of Commerce reported a 57% decline in their commodity index in May:

“The Journal of Commerce commodity index that includes steel, cattle hides, tallow and burlap plunged 57 percent in May, two years after a decline that foreshadowed the worst recession in half a century. The index of 18 industrial materials declined the most since October 2008 as Europe’s debt crisis widened and China took steps to curb growth.”

The sharp decline in the index in June of 2008 was just two months prior to the beginning of the vicious 2008-2009 downturn:

“In June 2008, a month after the index reached its peak, the Paris-based OECD said the U.S. would grow at a 1.1 percent rate the following year. Commodities continued to drop, and in October 2008, the index fell at a 56 percent annual rate, which was then the lowest level since 1949.

Almost two months later, the National Bureau of Economic Research, the panel that dates American business cycles, said the U.S. was in a recession. The world’s largest economy shrank 2.4 percent, the worst contraction since 1946.”

Stocks in Shanghai closed the session down 0.9% bringing full year losses to almost 19%.