Thread by @GrahamTAllison

1/ China Challenge: Believe It or Not*

China’s Property Market

2/ Which Chinese asset market has posted negative returns over the last 20 years—a period of unmatched meteoric Chinese economic and business growth?

3/ Answer: property. As of this month, China’s property market has erased nearly 20 years of appreciation (inflation adjusted). That means Chinese real estate investors would have made a better return over the last 20 years stuffing cash under their mattress. Most importantly, at the height of the bubble about 70% of Chinese household wealth was concentrated in real estate.

4/ But for perspective, it’s also worth spending a moment to consider comparisons. When the US housing market crashed in 2008, that set off a chain of events that ended with the Global Financial Crisis and a worldwide recession. China has so far unwound its massive asset bubble without triggering a recession.

5/ Investors should take President Xi seriously when he says: “houses are for living in, not speculation.” Chinese policy is attempting to deflate the bubble in ways that create more affordable housing—while citizens suffer dramatic loses in their retirement savings. The impact of this on consumer confidence has been huge. Moreover, it remains unclear when this process will end.

6/ *As part of an effort to improve our understanding of China, I will continue to offer another “Believe It or Not” about China each week. Readers are invited to send along candidates for the list.