Friday's Top 10 at 10 with NZ Mint: Chinese house prices falling; Beijing house prices were 32 times income; China's Skyscraper Index; Why Sino-Forest has the Muddy Waters blues; Cartoons galore; Clarke and Dawe; Dilbert

Here's my Top 10 links from around the Internet at 10 past 3 pm  in association with NZ Mint.

I'll pop the extras into the comment stream. See all previous Top 10s here.

I welcome your additions in the comments below or via email to bernard.hickey@interest.co.nz.

It's a bit of a China special. Have a great weekend.

1. China's property bubble begins to burst - The WSJ reports that Chinese property prices have started falling. Beijing house prices hit a peak of 32 times average income.

This is a must watch for anyone in New Zealand.

China's economy has been dependent on a massive housing boom in the last couple of years, both in prices and in construction.

That has driven demand for concrete and steel.

Iron ore and coal are key ingredients in both.

Strong iron ore and coal prices have fueled Australia's biggest mining boom in a century.

Australia is New Zealand's largest trading partner and China is our second largest.

That's why we should care.

If China's housing market slumps that will hit iron ore and coal prices. It may wipe out some Chinese banks. Activity and commodity prices would fall.

Demand for our dairy commodities would fall.

Here's what's happening there:

World Bank economists warned at a Beijing press briefing that a real-estate bubble was among the biggest economic risks China faces.

Already, in nine major cities tracked by Rosealea Yao, an analyst at market-research firm Dragonomics, real-estate prices fell 4.9 per cent in April from a year earlier.

Last year, prices in those nine cities rose 21.5 per cent; in 2009, the increase was about 10 per cent, as China started to recover from the global economic crisis, with much steeper increases toward the end of that year. A downturn in property and apartment prices would harm Chinese industry and investment, and crimp consumer spending.

China is a "housing-led economy", says UBS economist Jonathan Anderson, who estimates that property construction alone accounted for 13 per cent of gross domestic product in 2010, twice the share of the 1990s.

2. The building goes on -  The Telegraph reports China plans to build a new skyscraper every five days for the next three years. The number of skyscrapers is sometimes a leading indicator of a bust. Dubai was the latest.

Currently China has more than 200 skyscrapers – defined as a building over 500ft/152m tall - under construction, which is equivalent to the total number of skyscrapers in the US. In five years time, China will have 800 skyscrapers, the compilers of the year-long research found.

If China's economic development continues on its current trajectory, it could build a new Chicago every year until 2030 more than 1,500 new buildings that are over 30 stories high according to a report, 'China's cities in the Sky', released in January by the consultants McKinsey & Co. However, the research also warned of the growing danger of white elephant projects, as local Chinese governments build towers as vanity projects in a bid to establish themselves as international-standard cities.

The correlation between manic skyscraper building booms and economic crashes – most recently seen in Dubai during the financial crisis – was popularised in 1999 with the release of the "Skyscraper Index" by the Hong Kong-based property analyst Andrew Lawrence "Is China building its way to a bubble? It may have started with the Tower of Babel, but over the past 140 years, there appears to be an unhealthy correlation between building the world's next tallest building and an impending financial crisis," Mr Lawrence, of Barclays Captial, wrote in a report in January.

"New York 1930, Chicago 1974, Kuala Lumpur 1997 and Dubai 2010. The world's tallest structures rarely stand alone, with skyscraper building booms coinciding with economic corrections," he said.

3. Who gets hurt first - The WSJ's Alex Frangos looks at who might be the losers in any slide in Chinese property prices and its construction market.

The first set of economies affected would be big commodity producers that sell to China or rely on China’s demand indirectly. Top of that list would include Australia (coal, iron ore, natural gas), South Africa and Brazil (industrial metals) and Chile (copper). Southeast Asian countries such as Thailand and Vietnam supply rubber, and Indonesia provides a lot of coal.

Those countries’ currencies, such as the Australian dollar, Brazilian real and Chilean peso, which are at record or multiyear highs, would pull back.

Another impact of a China hard landing would be oversupplies in China of steel, machinery and other basic-material items, says Mr. Anderson. During a brief economic slowdown last decade, China reduced a glut by exporting those items at very low prices, which triggered a global drop in steel prices and political standoffs with the U.S. and Europe, where steel industries have bristled in the past over Chinese steel’s flooding global markets.

4. US house prices could drop another 25% - Bloomberg reports Robert Shiller, the guy behind the Case-Shiller index, reckons US house prices could still fall a further 10-25% over the next five years.

U.S. home prices plunged 33 percent in 20 cities through March from their 2006 peak, reaching their lowest level since 2003, according to a Case-Shiller report on May 31. The decline signaled a “double dip” as the index fell below its previous post-housing-bubble low set in April 2009. Prices more than doubled from 2000 to July 2006.

A backlog of foreclosures poised to hit the market means prices may stay depressed, dissuading builders from starting new construction. Unemployment, which rose to 9.1 percent in May, and stricter lending conditions are signs that any recovery in housing may take years.

5. America's lost decade looms - CNN Money's Chris Isidore reckons America faces a lost decade as consumers struggle to get out from under high debts.

He quotes from Carmen Reinhart, who has been very influential in the discussion around the effect of deleveraging and financial repression. 

The process has only just started. It needs massive repayment of debt and the stabilisation of asset prices. HT Chris via email.

"I think we're in for a lot of disappointment," said Carmen Reinhart, a senior fellow at the Peterson Institute for International Economics and a leading expert on financial crises. "If historic norms hold, deleveraging isn't pretty, and it is not a smooth process. We're already four years into this. I don't think the next six years look great."

The bubble economy that led to the recession was fueled by American consumers, businesses and banks taking on too much debt, particularly in real estate, during the decade before the crisis.

Despite Americans paying down debt, saving more of their paychecks, and shedding some of their debt through bankruptcy and foreclosure, Reinhart estimates that the amount of consumer debt alone has declined to only about 92% of the gross domestic product. That's down from only 98% at its high point at the end of 2007 -- a peak that shot up from less than 70% in 1999.

6. Fraudulent Chinese firms - Allegations of accounting fraud involving Canadian-listed Chinese firm Sino-Forest has everyone aflutter oop north about how trustworthy Chinese companies really are.

The whole thing was kicked off by a sell report from short seller 'Muddy Waters'.

Here's FTAlphaville with the story, which has triggered massive slumps in many American-listed Chinese stocks.

Muddy Waters Research, a specialist in Chinese companies, on Thursday issued a blockbuster “strong sell” rating on Toronto-listed Sino-Forest Corporation, a self-described “commercial forest plantation operator in China”. But this was no ordinary “sell” rating: Muddy Waters both initiated coverage on the forestry company, which listed in Canada via a reverse takeover in 1995, and accused it of a “stratospheric” fraud.

The report examines Sino-Forest’s money trail, and includes extensive on-the-ground analysis. The company is alleged to have “massively exaggerated” its assets, created non-existent “artificial intermediaries” to hide its real revenues, and, in a coup de grace, used forestry consultants Poyry to sign off its valuations.

Muddy Waters says that Sino-Forest claims to have acquired a total of $2.9bn in standing timber since 2006. But there is “smoking gun evidence” that the company has overestimated its timber stock in Yunnan province by “at least $800m,” according to the research house.

Furthermore, of five Sino-Forest agents supposedly based in Yunnan, only one is real and legitimate, Muddy Waters alleged.

The foundation of what Muddy Waters called Sino-Forest’s “ponzi scheme” are the intermediaries supposedly used to artificially book revenues from deliveries that were never made, claims the research house.

Oh. And by the way. Sino-Forest spent NZ$101 million buying the 13,000 hectare Mangakahia Forest in Northland late last year. The OIO approved it quietly.

7. This scandal isn't going away - FT.com's Tilt reports multiple investigations into Sino-Forest and growing worries about other Chinese firms.

There have been announcements by OSC and SEC of investigations into trading in its shares. The scandal has catalysed existing worries about Chinese reverse mergers and accounting practices. And at pixel time, Interactive Brokers was announcing it was blocking 160 Chinese securities “influenced by China accounting scandals”, according to Reuters.

8. The other David Henderson - I love that New Zealand has two wheeler-dealer property developers being pursued by the IRD for taxes. Today the Auckland David Henderson has been bankrupted.

Henderson was trying to avert bankruptcy through a proposal that would drip feed creditors $1.5 million, or about 4c in the dollar, of a $130 million debt over three years.

The one-time rich-lister developed Princes Wharf and other projects including the high-rise Precinct Apartments near Albert Park.

He was one of Auckland's most influential developers, credited with projects worth about $1 billion.

9. What will it take for a monetary policy shakeup?- NZ Manufacturers and Exporters Association CEO John Walley has his say and puts up this chart on his blog.

The correlation between the exchange rate and tradable sector performance is clear from the graph below. The tradable sector has notably fallen away from about 2003 as the exchange rate has remained persistently overvalued over that time.

10. Totally Clarke and Dawe video - Tony Abbott is very frustrated about being criticised for saying things that are mutually exclusive.