ReutersResidential buildings under construction in the Kangbashi ‘ghost town’ in Ordos in Inner Mongolia, now hit by falling prices and unsold inventory.

ORDOS, China—For a sense of the sharp policy shift China’s leaders have to orchestrate to avoid the world’s second-largest economy landing with a hard thud, look no further than this Inner Mongolia desert town, where construction cranes have come to an abrupt standstill.

Just as a European crisis and a weak U.S. recovery are hurting Chinese exporters, the confidence that had sustained China’s property boom is evaporating, causing a double whammy for growth: fading demand overseas and at home at the same time.

The construction slump couldn’t have come at a worse moment for China’s factories. A key manufacturing measure Thursday, the official purchasing-managers index, fell to 49 in November, below the 50 mark that separates expansion from contraction and the lowest since the financial crisis in February 2009.

On Friday, China’s central bank for the first time acknowledged that the country’s housing prices have reached a turning point, citing a decline in property investment, land-transaction volumes and prices.

With both the real-estate and export sectors in trouble, the warning light on China’s growth is flashing red. Like in the last crisis, China’s leaders have been quick to react but this time around their options are limited.

A slowdown in China would have far-reaching consequences world-wide, from commodity producers in Australia and Brazil to U.S. exporters that target China’s consumers and a crisis-ridden Europe seeking financial backers.

Metals would be among the hardest hit; Chinese construction is among the largest global drivers of demand for iron ore. And Chinese consumption, ever-more important globally, could also be dented as about half of China’s household wealth is tied up in property.

The weak manufacturing data prompted J.P. Morgan economists to cut their growth outlook for China’s economy; they now see gross domestic product growing at a 7.2% annual rate in the fourth quarter, down from the 8% they expected previously. In the third quarter, GDP grew at a 7.9% rate.

“The question is, do you think in six months this weakness is going to feed on itself and is China going to be a force for greater slowing,” said J.P. Morgan chief economist Bruce Kasman. He is reckoning no, on the view that Chinese authorities will further ease monetary policy and take other measures to help boost growth.

Nowhere is China’s predicament more visible than in Ordos, the unlikely epicenter of China’s real-estate investment frenzy.

The town grew prosperous on the back of massive reserves of coal, and like the newly rich all over China, its residents piled into property. The result was a new city in the desert—Kangbashi—the eerily empty “ghost town” that has come to symbolize the excesses of China’s property boom.

“Everyone has at least two or three properties and lots of people have seven or eight,” says Zhao Yanan, a saleswoman at Heng Sen Property Co. “Where’s the demand for more?” she asks.

As Ordos property prices edge down and transaction volumes plummet, sales reps shiver in empty, unheated offices. Developers who borrowed funds at usurious rates are left with unsold inventory and mounting debts.

Ordos’s chill, while extreme, echoes the broader trend. Mark Williams, China economist at Capital Economics, says that across the country, growth in new housing starts came in at close to zero in October. One developer, Zhejiang-based Greentown, plans to slash new starts by 40%-50% in 2012. Other major developers are also promising to focus on shifting the swelling backlog of inventory before breaking ground on new projects.

Wang Tao, China economist at UBS, now forecasts China’s gross domestic product will grow 8% in 2012, down from a projected 9.2% in 2011,

The government has already pushed the panic (read: stimulus) button. Last week, the People’s Bank of China moved to reduce the percentage of deposits that banks must keep on reserve by 0.5 percentage point, freeing up new funds for lending.

But the options Beijing has to support growth are more constrained than in 2008, when it leaned on banks to finance a massive stimulus plan.

Huang Yiping, China economist at Barclays Capital, anticipates a further three cuts in the reserve-requirement ratio by June 2012 as the government guides the banks to ratchet up lending.

The government will also aim to fire up investment in public-housing projects to compensate for the construction slump, but there are doubts such efforts can realistically pick up the slack. In Ordos, work on a 20,000-apartment complex is under way. Concrete shells of some buildings are already in place, while work on others has hardly commenced.

The fiscal position remains strong, with a surplus of 1.3 trillion yuan in the first ten months of the year—equal to 3.3% of 2010 GDP. A shift toward fiscal deficit in 2012—with the government supporting demand by spending more than it takes in taxes—could provide a significant prop to growth.

The spending binge that pulled China out of the 2008 crisis left local governments loaded with debt, exposed banks to the risk of surging bad loans, and inflated a real-estate bubble. Further stimulus risks adding to those problems. Near the top of the list of potential pitfalls: reinflating the real-estate bubble that the government has spent the past 20 months trying to deflate.

Real-estate investment in Ordos, with a population of around 1.6 million residents and with 9.1 million square meters of property under construction, has averaged growth of 68.8% over the past four years, compared with 27.6% for China as a whole. The biggest and most extravagant development so far is Xinghewan—or Star River—on the edge of the city’s old town, where 1,925 apartments are under construction.

In the palatial sales center, a 3D animation on a cinema-size screen presents the vision for the finished complex. Shoppers walk past a Louis Vuitton store in an on-site shopping mall. Water spews from the mouth of a golden dolphin statuette into an artificial lake. A 12,000-square-meter garden is covered by a glass roof, protecting the plants from the winter cold.

On Sept. 6, the developer put 300 of the apartments on the market; so far 270 have been sold, according to a sales rep for the company. Zhou Gaizhi, a former sales rep, now working for another developer, is unimpressed. “If the buyers were there they would have taken all the apartments to market at once,” she says.

November data from property consultancy Soufun published Thursday show average prices in Ordos down a mere 0.78% month-to-month. But speculators buy property because it is rising in value. Even slight falls have been enough to scare them out of the market, putting pressure on developers to offer sharper discounts.

On Wednesday morning in Kangbashi, a group of about 35 migrant workers clustered around the entrance to the showroom of Wenming Property. Inside their colleagues negotiated with local officials and company management over unpaid wages. “We’ve come to settle accounts with the boss” said one worker from Gansu province, who did not give his name. Wenming means “civilized” and the dispute appears headed for an amicable resolution. But it underlines the difficulty developers have covering even their basic costs.

Locals trace the beginning of market decline in Ordos to Sept. 24, when Wang Fujin, the president of Ordos Zhongfu Property Development Co., committed suicide. Chinese media reported he left unpaid debts of 263 million yuan (about $41 million), borrowed at a rate of 3% a month.

Mr. Wang’s death triggered a panicked response from investors with funds in the underground lending schemes that helped to fund Ordos’s building boom. One Beijing-based businessman, who asked not to be named, said he is trying to pull almost 200,000 yuan out of a lending scheme since hearing news of the suicide, with no success.

Ghost towns like Kangbashi are symptomatic of a wider malaise in China’s property sector. Nationwide there was 3.6 billion square meters of property under construction at the end of October, compared to sales of just 709 million square meters in the first 10 months of the year, suggesting a wave of overcapacity about to hit the market.

Eyes are on what tools China’s leaders will employ to cushion the economy. Shares in mainland developers soared Thursday on news of the central banks’ move to encourage more bank lending.

—Yang Jie, Dinny McMahon and Justin Lahart contributed to this article.Write to Tom Orlik at Thomas.orlik@wsj.com