Property risks are overshadowing China's economic outlook as a slowdown in sales threatens to trigger developer collapses, the Organisation for Economic Co-operation and Development said.
"While the exit of small developers would not pose a problem, the failure of large promoters could put some bank lending at risk, perhaps triggering negative chain reactions," the Paris-based OECD said yesterday.
"A key risk is an overly quick liquidation of unsold property."
China's economy, the world's second biggest, will expand 8.5 per cent next year even as export growth is pulled down by weak demand and a decline in the nation's competitiveness, the report said.
Government housing projects can help to support construction and moderating inflation may allow Premier Wen Jiabao's government to cut interest rates from the middle of next year, the OECD said.
Vice-Premier Li Keqiang said the property market was at a critical stage and indicated that curbs should be maintained even as sales fall.
October housing transactions declined 25 per cent from September and prices fell in 33 of 70 cities, according to government data.
Most Chinese builders face delays in payments from developers, Credit Suisse Group AG said previously in a report, citing a survey.
"Individuals have been holding back from purchasing houses and developers carry a rising level of unsold inventory," the OECD said.
Japan, the region's second-biggest economy, risks seeing a spike in government bond yields unless it controls a debt load set to approach 230 per cent of gross domestic product in 2013, the OECD said.