Sometimes an old forecast is worth rereading for what it already saw. In March 2022, Chi Hung Kwan, a consulting fellow at the Japanese think tank RIETI, published an analysis of where China’s economy was headed that year. The picture he drew — a boom cooling fast, a housing market in trouble, and a zero-COVID policy squeezing growth — reads today like a checklist of everything that defined the period. The growth numbers told the first story. After a V-shaped rebound from the initial pandemic shock, China’s GDP growth peaked at 18.3% during the first quarter of 2021 before sliding to 4.0% by the fourth quarter — lower than the United States at 5.5% and the EU at 4.6%, a rare inversion. Full-year growth of 8.1% in 2021, against 2.2% in 2020, masked a slowdown already underway.
The Twin Drags: Housing And Zero-COVID
The housing adjustment began with the debt crisis at China Evergrande Group and other developers, which came to light in September 2021. By the time of writing, the growth rates of home sales area and housing investment had both turned negative, and the new-home price index across the 70 largest cities had been falling month over month since September 2021. The valuations were striking: price-to-income ratios in 2020 stood at 39.8 times in Shenzhen, 26.2 in Shanghai and 23.8 in Beijing — beyond Tokyo’s level of less than 20 times at the height of its late-1980s bubble.
The second drag was policy itself. China held to a “zero infection” strategy of mass testing, targeted lockdowns and border quarries of two to three weeks while the rest of the world moved toward coexistence. Xi’an, a city of 13 million, had just spent a month locked down starting December 23, and Tianjin, Ningbo and Shenzhen saw factories and port facilities close in series. The severe power shortage of summer 2021 — partly a product of closing coal plants to meet the 2030 emissions-peak and 2060 carbon-neutrality pledges — had added its own dent.
Why The Stakes Were So High
Real estate’s weight explained the anxiety. Housing investment came to 10.4 trillion yuan in 2020, equal to 10.3% of GDP, with demand spillovers into steel, appliances and furniture. Mortgages to individuals stood at 34.4 trillion yuan, or 19.9% of all loans, and local governments drew 8.4 trillion yuan in land-transfer revenue — roughly a quarter of national fiscal income. A falling property market threatened growth, bank balance sheets and public investment at once.
Other signals were equally uncomfortable. Producer prices rose 10.3% in December 2021 while consumer prices rose just 1.5%, squeezing downstream firms that could not pass on costs, and monetary easing was constrained by inflation worries. Exports had been the reliable offset, with China’s production recovering ahead of its demand while stimulus-fed demand ran ahead of supply elsewhere.
The Forecast’s Sober Caveat
For all the Japan comparisons — the fear of “lost two decades” after a housing bubble bursts — Kwan’s verdict was measured. Unlike 1990s Japan, a mature economy when its bubble popped, China remained a developing one with a potential growth rate around 5%, buoyed by its latecomer advantage. Even if the bubble burst, he argued, a prolonged slump was avoidable. The piece closed on the question of how long zero-infection policy could last, as the Omicron wave gathered. Reading it again, the useful lesson is not the specific numbers but the method: watch housing, watch the policy reflex, and distrust headline growth that hides a falling quarterly trend.
