What Is Up With China's Real Estate Market?

So, I know a lot of youtubers and news sites and other bloggers have already posted a lot of stuff about this issue, and so originally, I wasn’t going to cover it much. But after going out there and watching a lot of the content myself, I haven’t found anyone yet that really gave the broad picture on this. For the ease of comprehensibility, I’m going to cover everything from the beginning, and this is probably going to include a lot of redundant information if you’ve already been following events as they unfolded. So, sorry about that.

Another note I should probably add before we start is explaining my own personal bias. I’m not a big fan of any political theory or explanations that put too much weight on individual leaders at the top, even in dictatorships. It’s not that I don’t think they’re primarily responsible, it’s just that, well, I don’t know Xi Jinping. There’s no evidence of what he’s thinking in his head. Saying that the root cause of something is because Xi is an egomaniacal idiot just seems like the political version of the God of the Gaps theory. And so, sometimes, I think I come off as something of a CCP and Xi Jinping defender? Because I think that even if the CCP and Xi Jinping were perfectly well-intentioned people of at least average intelligence, all of the problems that China is facing right now would still exist.

Just to clarify: I don’t know for certain that the CCP is exclusively composed of well-intentioned people of at least average intelligence. I’m 100% certain that while the problems would exist, they’ve certainly been exacerbated by various amounts of corruption and incompetence. But I think a lot of media gets overly focused on a few bad apples and there isn’t enough attention on the structural issues affecting China, and that’s certainly the more interesting side of things to me.

Now, where to start?

The reason I wanted to write this article all of a sudden is that on my youtube recommendations list, for the first time since I’ve come to a western country, I’m starting to see a lot of voices talking about “the fall of China”, “Is China collapsing?”, “the problem with China’s economy”, and stuff like that. Before that, for the longest time, it seems like the mainstream opinion has been that China’s really strong and really powerful and is catching up to America, or even has already exceeded America, and that it’s certainly one of the super powers of the world. At least, since I’ve come to America in 2014, that’s what everyone around me believes when it comes to China.

And I regret not starting this substack earlier, because now I have no evidence, but I swear to God, that I have always told people around me that China’s nowhere even close. Just like the Soviet Union back in the day, the Chinese economy’s always had deeply unsustainable, fatal flaws that it’s hiding with propaganda and censorship, and it merely puts on a face of wealth and power to the world.

Take a look at China’s GDP per capita. It’s only around $12,000, number 70-ish in the world, somewhere between Kazakstan and Nauru (the island that survives exclusively off of exporting bird shit). China is poorer than Mexico. It’s poorer than Malaysia. It’s a lot poorer than Romania.

That doesn’t really fit a lot of people’s impression, especially not Chinese people’s impression. Because China doesn’t act like a second world country that has GDP per capita on the same level as Kazakstan.

Chinese cities are incredibly nice looking. Chinese subway stations look like fancy American airports. Even rural Chinese highways are lined with street lights, and they bother to put a fancy design on the street lights too. China spends a lot of money every year on aid to Africa, on building one road one belt, on buying Russian oil at greater than market price to help with the Russian-Ukraine War.

Look at the Hangzhou Subway Station.

Why? Well, to some extent, it’s because for a while in there, it worked. Not just that, it was absolutely necessary. This goes back to the problem I’ve talked about several times before about how almost all of China’s problems come from the fact that it went from a practically medieval agricultural society to a modern day information-based society in all of 40 years. There’s going to be a lot of societal issues that pile up when you finish the growth that normally takes 200 years in a fifth the time.

A lot of youtubers I’ve seen blame China’s tendency to build large infrastructure projects that literally nobody needs on incompetence or maybe corruption. And I’m not denying that those are factors. It’s absolutely true that the CCP doesn’t just record data about GDP, but instead set a GDP goal that it issues to its provinces, and those provinces have to somehow figure out a way to hit their GDP goals. And often times, the simplest and fastest way to achieve it is to throw a bunch of money at building a new road or bridge or subway station or something else.

But it’s also true that at least throughout the 80s, 90s, and 2000s, it honestly, sincerely, wasn’t realistic for China to wait until demand popped up before it started building, because the economy was growing faster than roads and skyscrapers and power plants could be erected. If you didn’t immediately hurry to fund a power plant when your state is only populated by subsistence farmers, then your neighbouring county completes their power plant first, and all the factories open there. And by the time you’ve designed and approved and constructed a power plant, you’re already years behind a society developing at breakneck speed, and you’ve forever lost the opportunity to become a big, important city like Chongqing, or even a semi important city like Luoyang.

Governments were blindly throwing their money at infrastructure because it worked, because at that point in society, nothing had been built yet. Whether you were funding power plants or subway stations or roads or dams, it was all pretty necessary to one degree or another. And when a strategy consistently works for you for 20-30 years, it’s hard for normal people to immediately identify when they need to stop, much less for a government.

Because the other factor driving this is the dictator’s blindspot, except the blindspot doesn’t belong to just the dictator, it affects every level of government. Even in a small rural county in China, like my hometown, you’re still talking about a population of 600K people. At this scale, it’s not particularly realistic for the government to know everyone and their needs. And there aren’t any elections or local ballots, where people can vote on what they need. And any complaints about what you don’t like about the status quo gets censored off the internet. This means that while the government is aware that further infrastructure spending is only bringing increasingly marginal returns, they’re often completely blind to the cost of those returns. They think to themselves that while the returns are decreasing, at least it’s still somewhat beneficial. And they don’t see any other costs than the price tag itself, because all negative voices have been censored out of their world.

And what are the costs? It’s all the things that are less immediately visible and impressive, that is nonetheless absolutely vital to a society’s development. For example, China claims to have mandatory education from primary to middle school, and yet, it doesn’t have enough openings for all the children who exist in some school district, even in cities. Not to mention all the rural areas that don’t have a school at all. They’ll get to the point where there are 20 classes per grade, with each class having over 100 students, and one math teacher is expected to teach all of them maths, and all the grades above them and all the grades below them. No wonder then it’s absolutely necessary to get tutoring in China.

For example, China’s healthcare insurance is notoriously unreliable, in that it won’t cover anything below a certain amount, it won’t cover anything above a certain amount, it’ll only cover 50% of the middle amount, it won’t cover a lot of medicines that people absolutely need that there isn’t a great substitute for. That’s assuming you’re lucky enough to live in an area with a hospital to begin with, and you’re lucky enough to be able to see a doctor, because they open up appointment times 2 weeks in advance, and it’s just a matter of hand speed whether you can snatch a slot. You’ll lose, by the way. There are medical ticket scalpers who professionally buy up all the time slots and then turn around and sell it for hundreds or thousands of RMB. And to repeat myself again, there aren’t payment plans offered at Chinese hospitals. If you don’t have money, they will make you leave and die on the streets.

For example, China’s minimum social security payments is just about 100~ RMB a month. “That’s not so bad. Minimum social security payments are only 45 bucks in America,” you say. Except that most old people in America currently worked most of their life, I’m pretty sure, right? They’ve been paying into social security. It’s a very small percentage of people who are getting minimum payments. About 4 percent, to be exact, according to the Social Security government website. But the old people in China currently spent their working years living through the fifties, sixties, and to some extent the seventies. You know, back when China was still trying out the whole communism thing, so most people weren’t really making money, and taxes didn’t work how they work now. They’re all people who technically don’t qualify for social security. The number of people who don’t have social security money at all in China is closer to 50%, based on China’s own census.

I’ve talked before about how a lot of aspects of Chinese culture—everything from dating ideals to people’s tendency to save way too much money to societal involution—comes from a place of not having a sense of security. And that’s because Chinese society offers next to no social safety nets for people.

A lot of people say, “This is because of the KPI system the CCP sets for local governments. Local governors aren’t held responsible to their people. Whether people are dying because they can’t afford medicine or whether people are dropping out of school in middle school isn’t something that ever affects them. But being able to point to a big impressive monument in real life like a brand new bridge is something they can show their boss as something they’ve accomplished in their position. Proof of why they should be promoted.”

And that’s definitely a factor, 100%. Big impressive bridges are a lot more visible as an accomplishment than, “Look at all the people who don’t have rotting feet because they can afford insulin!” But another big part of it, once again, the censorship of negative voices. Not only does that blind you to all the ways your decisions aren’t working, but when you’re only allowed to look at praises, it can give you the impression that your decisions are a lot more popular than they actually are.

China’s propaganda machine really pushes its impressive infrastructure building (whether or not it’s infrastructure that anybody actually uses), precisely because it’s visible, it’s pretty, it’s quantifiable. It’s easier to make a tiktok video promoting than making a greater portion of old people be able to afford to eat meat on a monthly basis. And the algorithm pushes people bragging about how pretty China is, how nice Chinese subway stations are compared to New York’s, to the front. And even if you know, as a politician, that this is because that’s the narrative the government wants to push, when all you see all day is people being like, “The new highway is the greatest thing ever!! It’s so much nicer than all those pothole ridden, speed trap filled, toll highways in Oklahoma!” It’s still easy to fall into the illusion that the majority of people are really in agreement that you’re doing the right thing.

But China doesn’t have the money to do all of these things, not even with its sky-high taxes.

“Chinese income tax isn’t that high though. If you make a yearly average of 35-40K, you only pay 25%. In America, the same income bracket pays like 22%. It’s not that different.”

That’s because when your society has next to no social safety nets, that makes people incredibly sensitive to how much taxes they pay. Unlike western governments, most of the Chinese government’s income source isn’t income tax (I know this webpage is all in Chinese, but here’s an official government breakdown, where you can see that individual income tax is only as much income as GST.) It’s also rather obvious because the Chinese government has come out and said that only 100 million people (the top 7% of the population) in China make enough money to even have to file taxes.

So for a long time now, the Chinese government’s been using every trick in the book to try to get more money out of people. A part of it is that China has ridiculously high taxes in other areas, such as a 17% value-added tax, in addition to an average 10% GST (yes, China charges both).

Or having a “base wage” when you’re paying social security. So for example, in Shanghai, the “base wage” that you have to pay social security on is 7310 RMB a month. So for anyone who makes less than 7310 a month in Shanghai, they have to pay medicare insurance and social security and unemployment insurance as though they make 7310 a month. In this youtuber’s example (around 7 minute mark) using data from his own company, his employees who are making 3500 a month have to pay 12% of that towards these “benefits”. And he lives in a state where the “base wage” is only 4494 RMB.

“That’s not really a tax, though. You’ll get that money back once you’re unemployed/sick/retired.” Some people might say.

Except will you? I’ve covered how useless Chinese medical insurance is. Although the first batch of people who spent their working careers paying into social security haven’t even reached retirement age yet, the government is already talking about delaying the age of retirement. China’s social security is already going bankrupt. And in order to make its unemployment numbers look good, your local government will literally send policeman to talk to you and threaten you into being a nominal “self-employed part timer” to make their numbers look better, and so you can’t actually collect on those unemployment benefits.

China also has state-owned companies, which the government will protect and favour. There’s state-owned media, that will prioritise advertising state-funded businesses. There are state-owned banks, who will give out loans no questions asked to state-funded businesses. The government will put sky high taxes on private businesses in the same field, like some sort of domestic protectionism. All because if you’re in urgent need of money as a government, you can’t go up to a private business and be like, “Hurry up and wire me 2 billion, I’ll pay you back later.” But you can just pull money off of the accounts of state-owned businesses, just as you can with state-owned banks.

But all of that doesn’t even come close to comparing to what a beast Chinese real estate is in terms of tax contribution.

And with that, I’m finally getting around to the topic I promised to write about.

The most common western take I’ve seen on the collapse of the Chinese real estate market is, “Well, look at all those ghost cities they built. Look at how there are twice as many houses as there are households in China. Of course those houses aren’t actually worth any money. This is a real estate bubble, and it was inevitable it would pop.”

I think nobody knows better than real estate developers in China that they’re building more houses than there exists demand. But knowing that doesn’t change the fact that the average local government depends on land taxes for a whooping 45% of their income.

Well, I say that. But technically speaking, China doesn’t have a land tax, since you don’t really own the land, and they can’t justify taxing you for something you don’t own (yet?). But they can charge you money to “lease” the land from the government for 70 years. According to this news report, the amount of money real estate developers pay the government to “lease” then land, and then to pay taxes on building the houses and selling it, accounts for 60% to 80% of their profits. Whereas looking at American real estate developers, the rule of thumb here seems to be to that land should take up only 25% of the cost of the development.

In fact, I’ve seen people work out the price of leasing the land, and joke that it just about accounts for 70 years of property taxes. You just have to pay it up front.

And when anywhere from 30 to 60 percent of your income depends on real estate developers continuing to throw 60-80% of their money at you, of course, the government comes up with all kinds of policies to prop up real estate prices. I’ve mentioned before the policy that you don’t qualify for public school unless you own, not rent. There are almost no laws guaranteeing the rights of renters in China. The landlord can kick you out anytime they want (even if you signed a contract for a year), they can come into your home whenever they want, they can raise rent as much as they want. Rural land are designated to be agricultural land, and you’re not allowed to do anything other than agriculture with it. Some people speculate that the government deliberately makes sure that there’s shitty infrastructure in rural villages to drive young people towards the cities so they buy more houses there. Maybe that’s true. Or maybe rural governments are just actually too poor to build infrastructure. That seems likely to me too.

Either way, they put pressure on real estate companies to buy up land, then pass laws that push or maybe even force people to buy up houses, so that real estate companies have more money to buy up more land. All so they could spend money on creating a China that looks a lot more first world-y and strong and prosperous than it actually is, so that people have confidence in the government and in the future. So that people are more okay accepting shitty conditions and long work hours and low pay, because they think their sacrifices are actually bringing about a better tomorrow that they dreamed of.

I’ve seen China’s real estate market described as a “government-backed ponzi scheme”, and I think it’s an incredibly accurate description. I would even call it a government created ponzi scheme.

At least at first, it wasn’t so bad, because while people invested in housing, it’s still undeniable that the houses being built were actually needed. China’s population was growing, and China’s educated, skilled population was growing even faster. There really was going to be a flood of people moving away from agriculture and into cities to do white-collar jobs, with or without government policies. For a while in there, I do believe that China’s rising housing costs had a basis in reality.

I think it all turned around in 2008, with America’s subprime mortgage. I think that really gave the Chinese government a bit of a heads up, and made them look into China’s own problems with giving out loans too easily and tighten the laws around loan approval. This had a bit of an affect in China—a lot of industries really did slow down as loans became harder to get. All of a sudden, the stock market wasn’t doing too well. Starting a business wasn’t really an option. And this didn’t draw too much ire from the people, because everyone understood that there was a global financial crisis going on. Of course times are going to be a little harder for a while.

But real estate continued to do well.

Because real estate was the only market that was still able to easily get loans.

And they did this by never going through the banks at all.

Their weapon was “pre-sold houses”. It’s basically the concept that instead of building a skyscraper full of apartments, and then trying to sell it to people, they build one sample apartment unit, and then sell that concept to people. “Pay me up front today, and I’ll start building a skyscraper full of these apartments. When it’s done being built, you can move on right in.” They’re basically getting a loan from thousands of normal people, and using that loan to buy up a bunch of government land that they’re forced to, which they’ll use as a collateral to get more loans from the bank now that they have real assets that are valued as worth a lot of money, and then use that money to buy more land from the government, which they’ll use as collateral to get more loans…and so on and so forth, allowing real estate to become the only market which could add basically infinite leverage onto itself.

And when you pay a real estate company 3 million RMB (for example) for a house that won’t exist for another 3 years yet, you’re basically giving that company a 3 million RMB interest-free loan. Well, that’s putting it generously, actually, because you probably won’t even get the principal back. Because all they ever promised you, and all that’s ever written on the contract, is that they’ll deliver an apartment unit that looks like the sample they showed you. The size might be written down in the contract, the utilities that come with it might be (like a dishwasher or central heating). But you won’t get to go through and inspect every detail like you can with a house that already exists. And the more they cut corners on the things that weren’t clarified, the more of a profit margin they can make. And any company would be desperate for more of a profit margin when they have to pay 80% of their profits to the government. That’s why you keep hearing about Chinese concrete actually being made out of sand. Or corn. Or cardboard.

So with all of the above information, it’s not hard to see then why China’s real estate market’s collapse is inevitable and entirely unsurprising. It was never sustainable to begin with.

“Why doesn’t the government do something about it?” you ask?

You mean, aside from the fact that real estate companies are responsible for 45% of their income?

It’s also because that number is probably much larger than we think.

Because there is yet another way that Chinese local governments make money which isn’t included on any census or financial reports. They’ll establish a private shell company, and write up the earnings they made leasing land to real estate companies as income for that shell company. And then use that shell company to not just take out loans from the bank, but to issue bonds to normal people as an investment option, paying back the interest with money they earn from the real estate market.

Except in order for that investment option to be attractive, it’s got to at least outperform just buying a CD or something, so the interest rate they offer on these debts are often rather high too, around 6%, when a five year Certified Deposit from the Bank of China only offers a 2.5% interest rate, for example.

So by now, it’s not just a matter of using this money to sustain their infrastructure and their wages and their basic utilities. It’s a matter that they can’t keep up with those interest payments if the real estate market explodes. They might not even have money to pay back the principal if the real estate market completely tanks overnight, because they’d been spending all that money on ridiculous projects that might boost the economy but will definitely look impressive.

I think it’s pretty clear at this point that the straw that broke the camel’s back in the end was covid. You can’t lockdown an entire country for three years and expect it to not fuck the economy. The only reason China even lasted as long as it did at this is because Chinese people have that tendency to save up a lot of money for a rainy day. But eventually, people run out of money. And every ponzi scheme collapses when new money stops rolling in.

But that’s all covid is. The straw that broke the camel’s back. With or without covid, the housing market would’ve collapsed anyways, because China’s real estate market had already gotten to a stupidly unsustainable point. In the list of housing prices to income ratio in cities around the world, China takes up 5 slots in the top 10. If you count Macau and Hong Kong as China, that’s 7 out of 10.

The price to income ratio is how many years’ worth of average income it takes to buy a 100 square metre house, by the way, and it goes with gross income. That is, how many years it takes you to buy a house if you don’t eat and don’t rent and don’t pay taxes. For comparison, the average house in San Francisco is about 1.2 million, and average income in San Francisco is about 54K. That’s a mere 22 years, compared to Beijing’s 56. And you think the Bay Area has a housing crisis.

But it’s even worse in China’s case, because in addition to “pre-sold houses”, there’s yet another special aspect of real estate in China that I’ve never heard of anywhere else, “shared area”. That is, when you buy a unit that’s advertised as 100 square metres, that doesn’t just describe the area inside the unit. The building has a corridor that you walk down, right? You have the right to use that corridor. It’s basically like owning a share of that corridor. Let’s say this building has 50 square metres of corridor, and 10 homeowners living in it. That’s 5 square metres each. You use the elevator. So you own a fifth of the area of the elevator too. You use the fire escape, right? You own a fifth of the area of the fire escape too. So if you live in a skyscraper, you might buy a 100 square metre house just to find that it’s actually only 70 square metres.

So in order to get accurate statistics on what a 100 square metre house in Beijing is worth, you might have to look at what 150 square metre units are being sold for.

Every time real estate is involved in a financial crisis, it’s always particularly bad, because it’s so inherently tied into normal people’s lives. Like, if the dot com bubble bursts, and you work as a car mechanic and you’ve never invested with your money, then you’ll probably come out okay. But like 73% of people own houses. That’s a bubble that affects three quarters of the population right off the bat.

And in China’s case, it’s far from just a housing collapse. Because it’s also a banking crisis, because people simply can’t afford to keep paying a mortgage on a house that never got built, while paying rent on wherever they’re living right now. When people default on their mortgages en masse, that causes banks to collapse.

It’s also a general financial crisis, because the real estate market was doing so well so steadily for so long that most large index funds and investment groups in China made a lot of investments into the real estate market, whether it’s into housing or real estate development companies. The same time that Evergrande went down, for example, one of China’s largest trust companies, Zhong Rong, also went into its own crisis.

It’s a government funding crisis, as I explained above, that’s going to turn into a infrastructure collapse crisis.

It’s a….I don’t even know what to call it, but remember when I said that most banks in China are state-owned too? When people save their money in those banks, it’s not unknown for the government to just move it to put out its own fires too, without anyone’s permission. And I can’t say that this isn’t exactly the sort of emergency situation where they wouldn’t do that. And I can’t guarantee that they’re going to spend that money effectively, in a way that ensures enough returns that they can pay people back.

I know that residents in small towns (like my family) are incredibly wary, because they’re always the people who are fucked first. Near the end of covid lockdowns, we already went through a series of bank failures where all of a sudden, you couldn’t withdraw your money anymore. It’s partially why so many people are investing in gold, because the government can’t come into your house and take away the gold you hid under your bed (yet?).

“Okay, but can this still get turned around?”

I dunno, man. I’m not a genius. I can’t think of a way to turn this around, at least. The Chinese government’s come up with a lot of policies to try to save the situation, and uh…they’re all in the line of, “But we’ll give you a better deal on your mortgage if you buy a house!” “We’ll totally open up all the green lights for you if you want to take out a loan and start a business!” “It’s okay, we’ll totally bail the local government’s out by letting them restructure their debt!” None of it really addresses the fundamental problem.

Which is that there are more houses in China than is needed, the existing houses aren’t worth their price, and the actual market value of these houses are probably far, far below what it currently is at. And encouraging people to continue to pump more money into the industry in order to prop up unrealistically high prices is just making the ponzi scheme even worse before it collapses, creating more victims, doing more damage. And when everyone can see that people are defaulting on their mortgages, and there are more foreclosed houses being auctioned off by the bank than new houses being built by real estate developers a year, then they’re not going to feel super confident about the economy and take their money out and invest. In fact, the only thing people seem interested in investing in lately is gold.

And restructuring local government’s debt doesn’t really help, because it doesn’t matter how low of an interest rate you offer them, when they’ve been cut off from their primary way of income.

There’s been proposals thrown around the internet which are all pretty silly. Like, why not put a price floor on houses so it can’t fall too low? Because that’s not how markets work, dude. Why not open up immigration and let foreigners come in and buy up our houses? Because they’re not dumb either, dude. Why not make it so that you can’t apply for university unless you own a house? Because people will literally come after you with torches and pitchforks, dude.

“Will they though? What’s going to happen to China now?”

To be honest, I’m not really a predictions sort of person. By that I mean, I’m not very confident in my predictions, because I know I’m just a midwit, and there are a lot of people involved in this who are a lot smarter than I am, and by definition, I can’t predict if there are any brilliant new ideas they can pull at the last second. Like, the situation looks really bad from where I stand. I have no idea what could possibly turn this around. But there are several points in history where I wouldn’t have known what to do if I was in charge, where nonetheless people managed to pull miracles out of their ass.

So I’m very hesitant to make any predictions of my own, but I can address what I think about predictions other people have made.

There’s the hyper-conservative faction of people, who think that literally nothing will happen. After all, I think we can all agree that no matter how bad this real estate collapse turns out to be, it’s not going to be as bad as the Great Leap Forward. The Great Chinese Famine starved like 30 million people to death, and nothing happened.

I don’t think this is a great take, because the societal context is all different now. What people care about isn’t necessarily their objective situation, but how they’re doing compared to the past. And in the 50s, all the adults at the time would’ve had very fresh memories of the hell that was WWII. And frankly, no matter how bad the Great Chinese Famine was, it wasn’t as bad as when the Japanese invaded. Like, on a subjective, emotional level, I mean. And people were generally very forgiving towards the government, because they also understand that China had just went through basically three wars back to back, and had suffered unprecedented damage, and of course it’s going to take a lot of growing pains to pick itself back up again. People weren’t mad at the government because they were starving, because all the people alive at the time were used to starving. I know because my grandma lived through those days, and I’ve asked her before what she thought about the famines, whether it disillusioned her.

And her reply was, “But I mean, people starve all the time though. It wasn’t really that big of a deal.”

I think people’s expectations and standards are extremely different now, and Chinese people proved their willingness to get out there and protest and riot with the covid lockdowns, and the healthcare reforms, and even a recent, brief, and small protest for actual public holidays off. Given that, I have a hard time thinking that they somehow wouldn’t be willing to march in the streets for, like, the entirety of their savings.

And there’s the extremist faction, saying that, “This is the end of China, we’re gonna see a total collapse of the Chinese government, China’s going to balkanise and fall apart forever. Or maybe they’ll attack Taiwan.”

I think that’s going a bit too far too. For one thing, the Chinese national identity is something that’s been built up since the Qin Dynasty. They’re not just a bunch of people who didn’t know each other before who got randomly roped into an empire in the last 80 years. Maybe the super recent provinces like Tibet might break off, but the core of China is going to remain China. That, at least, I’m confident in.

Would the CCP declare war to salvage an economic disaster, and waste angry youths on the battlefield instead of letting them riot domestically? Well, I mean, from every angle that I look at it, it would be a bad, irrational decision that doesn’t solve anything. But that describes, like, half the wars in history. So I can’t really say that it definitely won’t happen. Dictators have been known to do all kinds of crazy stuff when they’re pushed into a corner. I just don’t think the target is going to be Taiwan. Chinese people identify too strongly with Taiwanese people as, like, “one of us”, in group. They’re also Chinese, as far as Chinese people are concerned. It’s going to take way too long for the propaganda to turn public sentiment around such that people are willing to go murder fellow Chinese people. And I can’t say I see a particularly good target for China to go after other than Taiwan either. Like, what’s China gonna do, attack Japan?? I’m pretty sure the US is actually under treaty to protect Japan or something.

So um, I can’t entirely eliminate the possibility, but it does seem unlikely to me.

There’s the sort of middle of the road prediction, that this is just like what happened with Japan’s bubble in the 90s, and China’s just gonna go through the same shock waves and economic depression, but eventually pull itself together with a bunch of reforms.

Maybe. As someone who’s biased towards, “everything is not that big a deal”, I’m certainly biased towards this option. But I am totally aware that it’s a deep personal bias, so I’m not confident in my prediction at all. To start with, China is in a much worse situation than Japan in the 90s. Before the bubble burst in Japan, they had a higher GDP per capita than even America at the time. They were solidly in the top couple of countries in the world. Whereas even at the height of China, its GDP per capita was always just about on par with Malaysia. Japan’s housing bubble wasn’t nearly as tied in to every other industry as China’s. And Japan, at the very least, remained allies with America the entire time and could depend on favourable trade policies and maybe a little bit of help here and there.

China has no useable allies in the world, in fact owes a bunch of foreign obligations itself that it can’t back down on without losing credit on the international stage. It has a lot bigger accumulated economic issues which are all waiting to burst. And this is such a perfect opportunity for America to come along and give China a little push that I can’t imagine why America wouldn’t do it. After all, China’s been working so hard at being hostile to America. So, if I do my hardest to set aside my biases, it’s pretty clear that things will definitely be a lot worse than what Japan faced.

So what does this mean?

For American readers, probably not much. I’ve seen a lot of youtubers have weirdly fearmongery takes where they’re like, “Oh, people gotta bunker down and be ready for supply chain shocks because a lot of stuff gets made in China.” I mean, not really though. China still for the most part specialises in unskilled manufacturing. The kind of manufacturing that a lot of other countries can do. In fact, if you walk around, you’ll see that a lot of daily goods aren’t made in China anymore. That’s a trend that’s been happening since the trade war started. I’m seeing more and more “made in Indonesia” or “made in Bangladesh” or “made in Mexico” tags.

I think America will be just fine.

Okay, I’ve ran out of things to say, but that seemed like a really weird line to end the post on, like I’d written all of this just to reassure people that America will be fine or something. So I’m adding in this last paragraph of empty bullshit here, because I can’t think of anything neat and pithy to say at the end here. I always have trouble wrapping things up.

I guess I can finish off by telling a personal story about my family.

Our of everyone I know, the person who predicted the earliest that China’s real estate market is unsustainable and is going to explode eventually is my dad. He pointed out the problem in 2008, back when literally nobody else I’d heard of thought the same thing. When everyone was just marvelling at China’s economic miracle, and people in China were daydreaming about travelling back in time to tell their younger self to buy a house in Beijing instead of to buy a winning lottery.

He took one look at how much money the CCP was blowing on the Beijing Olympics, and knew they were spending money they didn’t have and couldn’t afford. And then with all the endless western media praising how far China’s come along, how impressive the opening ceremony was, how neat and pretty Chinese cities are, how it’s totally a developed world now, how it totally competes against America. And then he took one look at the village we still lived in, where people were regularly dying in the winter because they couldn’t afford to buy coats. And he decided that this was clearly unsustainable, and the government is clearly not going to actually change what they’re doing, thanks to how much positive feedback they were getting.

And he immediately decided he had to do whatever it took to get his family out of China. And that’s actually how I immigrated out of China.