China housing bubble 'will burst'

WA's top Treasury official says China's housing market is a bubble waiting to burst and this could cut demand for iron ore and further hit the State's Budget.

Acting Under-Treasurer Michael Barnes said yesterday a building frenzy in China during its boom had created an oversupply of about 50 million apartments.

After visiting several Chinese cities, including Hohhot, the capital of Inner Mongolia, Mr Barnes said he was convinced the sector was due for a severe correction.

In a sobering reminder to the State Government, he said this would have "implications" for steel production in China and in turn iron ore exports from WA.

Mr Barnes said the remarks were his own views and did not reflect the Government's position.

"As far as the eye can see there are rows and rows and rows - not just in this city (Hohhot) but every city I went to - of 20, 30-storey empty apartment buildings," Mr Barnes said.

"It's extraordinary. The official estimate in China is there are 50 million surplus apartments, yet they're still building them.

"So I came away from that thinking this bubble has got to burst at some stage."

Any fall in China's demand for WA iron ore could affect Government's finances given the trade is worth about $56 billion a year and billions in State royalties.

Housing has long been a favoured destination for Chinese savings and developers because of shortcomings in its other investment markets. Its people are wary of the sharemarket because it is seen as weak and prone to corruption.