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Tom Holland

The release of stronger-than-expected growth figures this week has reinforced hopes that the mainland's economy will avoid a nasty slowdown this year.
Unfortunately, steep falls in the prices of fine wine indicate that a hard landing may already be under way.
I understand that might sound like a ludicrous claim, but bear with me - it's not as silly as it seems.
First, the details: recent auctions of prized vintages have been disappointing.
Last weekend a Sotheby's sale in Hong Kong raised just HK$44 million, 20 per cent short of the storied auction house's HK$54 million estimate 
It wasn't an isolated case. Together, the three big wine auctions held so far this year in Hong Kong - the world's most important market - raised only slightly more than half the revenues that the same events generated in 2011.
As a result, prices are sliding. The Liv-ex Fine Wine 50 Index compiled by the London International Vintners Exchange has slumped by 25 per cent since the end of June last year.
That's troubling. The reason, as the first chart below shows, is that fine wine prices are remarkably tightly correlated with Chinese property prices.
That might sound bizarre, but as Deutsche Bank strategist Ajay Kapur explains: 'Fine wine prices are an excellent real-time indicator of excess liquidity in China.'
In other words, when there is lots of money and credit sloshing around the country's financial system, then cashed-up mainland buyers are happy to bid silly prices for cases of Chateau Lafite Rothschild at Hong Kong auctions. When money's tight, they stay away, and prices fall.
Much the same equation operates in the property market.
 When money's plentiful, prices go up. When liquidity's tight, they fall. As a result, the prices of vintage French wines are a good proxy for mainland property prices. That proxy indicates property prices on the mainland are sliding fast.
Anecdotal evidence supports this view. Although official figures show that prices are still rising in year-on-year terms, stories abound of steep price falls in many cities over recent months.
That's an ominous sign for  the country's economic outlook. In recent years construction and property investment have emerged as increasingly important engines of  the mainland's growth. As the second chart below shows, large building sales now equal almost 14 per cent of  the country's gross domestic product.
Once you factor in related sectors of the economy like steel for construction, and the manufacturing and retailing of furniture and household appliances, some analysts believe that the property market may now account for as much as 25 per cent of  the mainland's entire economic output.
As a result, a slump in property prices will have far-reaching consequences for the economy as a whole.
Falling prices will mean slower or even stalled growth in property investment. 
Given that property investment grew at 31 per cent over the first 11 months of last year, stalled growth - which means that investment would continue at the same frantic pace as in 2011 - would knock 2.5 percentage points off this year's overall economic growth rate.
That would bring  the mainland's economy firmly onto a hard-landing trajectory, which is usually defined as an annual growth rate of less than 7 per cent.
And that's before you even factor in the knock-on impact on other sectors.
In reality, a slowdown of such magnitude would have a whole suite of second-order effects on employment, consumer demand, bank asset quality and government finances.
That means the risk of a hard landing is a real one. Of course, the authorities could respond by easing credit controls in an effort to boost investment growth again.
But even that might not work, given that developers would have little incentive to step up investment in an environment of falling prices and existing high inventories of unsold properties.
So the prospect is a daunting one, but there is at least one compensation: lovers of fine wines who have been priced out of the market over the last couple of years may just find themselves able to afford their favourite tipple once again.



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Falling wine prices hint at a hard landing ahead