House sales are slowing in China and prices declining, Mr Chanos, founder of New York-based short selling firm Kynikos Associates, told the CNBC television network on Wednesday. "The cracks are spreading on the facade," he said, of China's economic growth story. "You're seeing real estate firms shutter, sales offices closed down. "Some of the engine behind the boom is at least beginning to sputter." Chinese developers are now turning to Hong Kong to raise capital through junk bonds as China's banks wind back lending, he said. Sixty per cent of China's economy is driven by the 12-year-old real estate construction and development market - twice the proportion of the Asian tigers before the Asia crisis hit in 1997, he told CNN earlier this year. By contrast, 10 to 15 per cent of Western economies are driven by construction. A sharp slowdown in the construction sector could plunge China into recession quickly, he said on Wednesday. "A lot of people are willing to say China will slow down. "The really scary thing is if you do the numbers and they cut back on construction there's not a slowdown - they go negative really fast." "We can debate China's numbers and the way they present them. But the fact of the matter is if they hit the brakes really hard, the economy goes into reverse." A Chinese economic slowdown or recession would have strong knock-on effects for commodity producers Australia, Brazil and Canada, and for Australia's housing market, he told website Data Diary last November. China's property boom has provided Australia's government with higher tax receipts which have been leveraged, via lower interest rates, into the local housing sector. A sharp China slowdown could deliver a terms of trade shock that sends local share prices lower and cuts income per capita through the multiplier effect of a showing housing sector, he said. "It's interesting that the only other countries that are experiencing a property boom besides China are Brazil, Australia and Canada." J.