China has locked down again. Yet World Cup TV shows that normal life has resumed outside China. And the real estate bubble (29% of GDP) continues to burst


It’s winter again in China, and lockdowns are returning under the Zero-Covid policy. Friday saw the capital, Beijing, “at a critical stage”, according to the city council. As the chart shows, cities accounting for 20% of China’s economy are already under lockdown. But at the same time, the start of the World Cup means millions of Chinese can see that the rest of the world is living a normal life again. 

The problem is two-fold:

  • China hasn’t yet developed an mRNA vaccine and doesn’t want to buy one from a foreign supplier
  • Only 2/3rds of those most at risk, the over-80s, have received even two standard vaccinations

So if the government opened up, China’s very basic medical system could easily be overwhelmed.

Shanghai’s Fudan University warned earlier this year it would lead to a “tsunami” of infections and 1.55m deaths.

The issue highlights the major misunderstanding in the West over China’s economy. Most people believe it suddenly became “middle-class” after 2008. Its growth has been the motor for the global economy since then. But in reality:

  • It is a relatively poor country, with per capita household income averaging just $5252/year
  • But the government panicked after 2008 as it worried about social unrest and unemployment
  • Since then, it has done $48tn of stimulus spending, as the chart shows
  • And so real estate is now a scary 29% of China’s GDP – if it crashes, so does the economy

Much of this money went into property speculation. Capital controls make it difficult for most Chinese to take money out of the country. And the stock market is widely regarded as a casino.

And so as the Bloomberg chart shows, China’s urban property market has been ‘subprime on steroids’ since 2009. As I noted here when President Xi took office in 2013, it had become “normal” for a 30-something office worker on $29k/year to buy a one-bed apartment for $460k:

“China’s urban property market only opened up in 1998. Before then, the state owned everything, and told you where to live. Even today, peasants in the rural areas build their homes on state-owned land. So families have never known a property crash. They are comfortable chasing prices higher because they believe “the government would never allow prices to fall”.

And many people went on to buy several apartments, on “the more the merrier” principle. They didn’t even mind if the apartment never got built. So today, there are at least 30m empty homes:

  • Plus, government data shows current housing inventory at 1020m square metres (1220m square yards)
  • This is enough to house another 340m people at the official guideline of 30 square metres/person.


But, sadly, every party has to end sometime. And the Zero-Covid policy is not just locking down people and factories. It is also pushing the economy into recession – at a time when Chinese property developers have a lot of loans to repay, as the chart shows.

As noted here in July, confidence is starting to drain away. So now the government is having to rush to fill the gap, as it worries about social unrest if the uncompleted apartments never get built. Last week, state-owned banks had to lend $162bn to developers, to avert the risk of default.

At the same time, the government has a new problem on its hands as the World Cup starts. Everyone in China is watching the matches. And they are all seeing that normal life has resumed outside China:

And the problem is unlikely to go away as the Finals run till December 18. That’s a long time for people to ask themselves “Why am I locked down, when the rest of the world is living a normal life again”? And in the background, the real estate bubble is continuing to burst.