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RENEE MONTAGNE, HOST:

Let's turn now to China, where the real estate market has been booming. A three-bedroom apartment in Shanghai overlooking the river can run more than three million dollars. But that's beginning to change. In recent months, real estate sales have slowed around the country. The slide comes as the world's most dynamic economy grapples with other challenges, including massive local government debt and slowing growth. NPR's Frank Langfitt reports from Shanghai.

UNIDENTIFIED WOMAN: (Foreign language spoken)

UNIDENTIFIED GROUP: (Foreign language spoken)

FRANK LANGFITT, BYLINE: This was the scene earlier this week at a real estate developer's office here. About a hundred angry homebuyers converged on China Vanke, one of the nation's biggest property firms. The protesters recently bought new apartments only to see their value quickly plummet.

(SOUNDBITE OF CHANTING PROTESTERS)

LANGFITT: Vanke, which refused to talk for this story, posted guards in green camouflage at the front gate. Homebuyers recently overran other Vanke offices in Shanghai and Beijing.

A woman, surname Sun, who protested at this week's peaceful demonstration, bought a Vanke apartment in August.

SUN: (Through Translator) The price was about $280,000. The price now is a bit more than $200,000.

LANGFITT: A fellow protester, surnamed Ling, said the company sold apartments then slashed prices to attract new buyers and generate cash. Ling says the price of her apartment fell $60,000 - or more than a quarter of its value - in just a few months.

LING: (Through Translator) Right now, I'm really furious with Vanke. I can't accept losing $60,000 because my parents contributed some of that money - and later, I'll have to pay them back

LANGFITT: Real estate analysts say demonstrations like this one are a sign of where China's property market is headed. In a word: down. Vanke reported home sales volume in November was 26 percent lower than the month before.

Cai Weimin, who runs a real estate think-tank in Shanghai, made a prediction for the coming year.

CAI WEIMIN: (Through Translator) On average, I think first tier cities like Shanghai will see house prices drop by 15 to 20 percent. Prices in second, third and fourth tier cities - that don't have home purchase limits - will fall by at least 20 percent.

LANGFITT: So far, the decline has been driven by Chinese government policies designed to deflate a housing bubble. The government has increased down payment requirements and limited the number of homes people can buy. Most don't expect the market to collapse. But given the slowing growth of China's economy and its exports, there's anxiety.

Cai says a steeper price drop would affect everyone from steel manufacturers to furniture makers.

CAI: (Through Translator) Real estate is a locomotive industry that leads at least 58 other industries. Once the real estate market shrinks, these domestic-demand-related industries will be affected. Doomsday probably won't come true in 2012, but for the Chinese economy, 2012 will be a very tough year.

LANGFITT: China has avoided economic downturns in the past with massive stimulus spending. Beginning in 2008, the government spent trillions of dollars to cushion the blow from the global financial crisis.

Ma Ji says some of that government stimulus money was diverted into real estate and pumped up property prices. Ma is senior marketing manager with Gemdale, a Chinese development company.

MA JI: (Through Translator) As for how stimulus money got into the hands of individual speculators, we have no way to know. But it is certain that investors got stimulus money through the government, state-owned companies or banks.

LANGFITT: Ma says many developers can probably manage some drop in prices. But he worries others won't be able to make loan payments. Ma expects bankruptcies to begin hitting this spring.

MA: (Through Translator) As for how many, I can't give you a percentage, but I am sure that some developers will go bankrupt.

LANGFITT: The timing of all this is not good. The United States and Europe continue to grapple with debt, and they're hoping China remains strong and stable. But as the recent slide in real estate here suggests, the world's second-largest economy faces a challenging year ahead.

Frank Langfitt, NPR News, Shanghai.

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