Shanghai has been booming over the past 3 years with the massive amount of money coming into the country and the influx of people, but the government has been slapping high taxes and curbing lending in the city and now things are starting to be felt. Last year the government curbed consumer lending in the auto industry and it was hit hard. Now they've focused on real estate. Sales volume has dropped 70% and prices have dipped 30% as the industry is feeling the effects. Could this be the tipping point for China's economy as a whole?

Businessweek

How serious could things get? Very serious, according to Credit Suisse First Boston's Dong Tao, chief economist for Asia ex-Japan in Hong Kong. He reckons mortgages account for 40% to 50% of all bank lending in Shanghai and that Shanghai property lending accounts for a fifth of all mortgages countrywide. A Shanghai crash could slam China's already shaky banks. Property generated about one-quarter of Shanghai's 14.3% growth in gross domestic product last year. Moreover, while Shanghai accounts for just 5.4% of China's GDP, a crash could have a ripple effect. "It affects demand for materials and electronics, insurance and mortgages. It's the source of fiscal revenues and consumer confidence," Dong says. "If we see a major dip in Shanghai it will be a substantial risk to the national economy and the global commodity market."

Within the city itself, the drought of property sales has put a damper on what might be called the hustle economy. Some 4,000 small property agencies have closed their doors in the past three months. Speculators who bought flats by the half-dozen with the notion of flipping them have been left holding the keys -- stuck with empty properties and big debts to the banks.

...

"If prices fall more than 30%, it will point to negative equity" for mortgage holders, says Kenneth Tse, property analyst for Morgan Stanley. "That's not something the government wants to see."