Economists watching China are concerned that an over-built housing market in smaller cities could trigger a major financial crisis. The latest figures on China's economic growth allay that fear for the time being. But the threat persists, and it could bring bad news not only to China but the global economy.

Reflecting the dominant role of the United States as the engine of economic growth in the 20th century, it used to be said that when the U.S. economy sneezes, the world catches cold. And indeed when the United States suffered the economic equivalent of pneumonia in 2008, the developed world's economy suffered, too.

But for the past third of a century, China has been the fastest expanding world economy, growing roughly 18 times in real terms since 1980 while the U.S. economy was expanding about 2.8 times. In recent years China has become the world's third largest economy, behind only the United States and the European Union. Its growth has slowed from the 10 to 15 percent annual rate reached during the 1990s, but China's rulers aim to keep it above 7 percent, still more than twice the average U.S. real growth rate for the past 33 years.

It follows, then, that if the Chinese economy stumbles, the effects will be felt here as well as in Beijing. Also worrisome is the probability that in order to divert public protests against a weakening economy China will begin to act even more aggressively in its foreign relations.

The problem China faces is that its efforts to stimulate construction have led to a housing glut in China's 200 hundred smaller cities where 70 percent of residential housing sales occur while, paradoxically, local measures to stem migration to Shanghai and other big cities have led to housing shortages and escalating prices in the big cities, where it is said only the wealthy can now afford the high cost of living.

Overall, however, housing prices in China declined 5 percent in January and February compared to a year ago, the Wall Street Journal reports, in contrast to decades of rising prices. They are likely to decline further. Housing values underpin not only personal wealth but also bank assets throughout China. The housing glut means fewer jobs in construction, fewer appliance and furniture sales, and shrinking personal and corporate balance sheets.

China's government economists have proven themselves to be able managers of the nation's growth, and they may well come up with ways to stave off a collapse or stagnation comparable to the one Japan has suffered for the past 15 years.

But the housing glut is a clear threat to China's effort to shift from an export-led economic growth to one more dependent on consumption by its own citizens.

If China fails to come up with a solution to this problem, the rest of the world will also face the economic sniffles, or worse.