A Chinese Bubble Long in the Making

Originally published at Project-Syndicate | Sep 29th, 2023

Owing to the one-child policy and the legacies of other less-appreciated Chinese development measures over the years, the stage has long been set for today’s property bubble. But even more tragically, much of China’s economic growth over the past decade has been an overdraft on future growth that now may never materialize.

MADISON, WISCONSIN – China’s property sector is the largest asset class in the world – larger even than the US equity or bond market. But there are growing fears that it is a bubble poised to burst. Already, the heavily indebted Chinese property giant Evergrande has filed for bankruptcy protection in the United States, and the real-estate developer Country Garden is battling a liquidity crisis. The failure of either, or both, could well trigger a financial crisis.

But why did a property bubble emerge in the first place? Like so many other problems in China today, this one can be traced back to the one-child policy that the government adopted in 1980 – a decision that would fundamentally reshape the country’s economic, political, and diplomatic trajectory. At the time, Chinese policymakers believed that the country had only around 1.4 billion mu (a Chinese metric equal to 1/15th of a hectare) of arable land, and per capita arable land only 40% the size of India’s. So, they concluded that births would need to be capped, and urban land restricted.

This conclusion proved to be deeply flawed. For starters, in 1996, satellite telemetry revealed that China actually had 1.95 billion mu of arable land. Even if the initial estimate had been correct, however, arable land does not necessarily correlate with grain production, which is affected by many factors. In 2022, China’s arable land area was only 77% the size of India’s, but its grain output was twice as high.

Yes, China still imports one-fifth of its grain, but that is because of agricultural policies and the international market system, not a shortage of arable land. And there is huge potential for China to increase its domestic food production further. Its cereal yield has increased from 196 kg/mu in 1980 to 421 kg/mu in 2021. Reaching the current US yield level would imply an additional 30% increase in cereal production, which is achievable in the near future. A study by the Chinese Academy of Sciences found that China has 850 million mu of undeveloped arable land in addition to the existing 1.95 billion mu of arable land.

China also has two billion mu of desert, some of which could be transformed into arable land through drip irrigation and soil improvements – as is already being done in the formerly barren Maowusu Desert. Similarly, China’s six billion mu of grassland (which is larger than India’s entire land area) has significant potential to produce additional meat and dairy products. The spread of indoor farms and white agriculture (in which microorganisms turn straw into feed) also promises to increase food production dramatically.

Finally, it bears mentioning that eating more is not necessarily better. An excessive food supply can lead to a greater incidence of obesity-related diseases and higher medical costs. Among developed countries, the US has the highest per capita daily supply of calories and protein, but the shortest life expectancy and the highest medical costs, whereas the opposite is true for Japan. For its part, China’s current per capita daily dietary supply is equal to the average between the US and Japan.


In 2000, China’s census showed a fertility rate of only 1.22 children per woman (2.1 is considered replacement level), meaning that the latest generation was half the size of the previous one. At this stage, abolishing the one-child policy and providing more land for urbanization would have been the logical thing to do.

But China took a different approach. The National Population Development Strategy Group, which included almost all official (government-aligned) demographers, revised the fertility rate to 1.8, predicted that the population would peak at 1.5 billion in 2033, and recommended continuing the one-child policy and protecting arable land. Moreover, in 2006, China drew a protective “1.8 billion mu arable land red line,” setting a standard of “1.2 mu of arable land per person” and strictly limiting the use of land for urbanization.

Although China’s urban development was planned for a population density of 10,000 people per square kilometer, rapid urbanization meant that young people were immigrating to cities faster than they could be accommodated. For example, Shenzhen’s city plan, approved by the Chinese State Council in 2010, envisaged a built-up area limited to 890 square kilometers (343 square miles), with a population of 11 million, by 2020. All residential areas, kindergartens, schools, and other infrastructures were planned around these parameters.

Yet the 2020 census revealed a municipal population of 17.56 million and a built-up area of 956 square kilometers, implying a population density of 18,000 people per square kilometer, with the Futian District rising as high as 27,000 people. (And some districts in Shanghai, Guangzhou, and Beijing have even higher population densities than Shenzhen.) For comparison, the population density of major American cities such as Chicago, Philadelphia, and Miami is just 4,000 people per square kilometer in downtown areas, and 1,000 in the rest of the urbanized area.

As China’s urbanization rate has increased from 19% in 1980 to 65% in 2021, the land made available for urbanization has lagged further behind. In 2021, 25% of the population lived in urbanized areas of counties and towns, and 40% in cities, but the overall urban built-up area of cities was only 62,400 square kilometers (94 million mu), accounting for a mere 0.65% of the country’s land area. No wonder housing prices have risen.

Despite the long-overdue easing of the one-child policy – the government started allowing two children in 2016, and three in 2021 – China’s population began to decline, even according to inflated official figures. After peaking at just 1.41 billion in 2022, the government reports, the Chinese population is on track to fall to 1.2 billion by 2050, provided the fertility rate stabilizes at the current official rate of around 1. I estimate that the actual population is now closer to 1.28 billion, and will drop to one billion by 2050.

In any case, with the standard of “1.2 mu of arable land per person,” even 1.41 billion people would need only 1.69 billion mu, meaning that hundreds of millions of additional mu could be made available for cities. As I show in Big Country with an Empty Nest, China has enough potentially available land for the population of all its cities to fall to the level of Chicago’s. This would cause house prices to decline dramatically.


Drawn at a time when Chinese policymakers were deeply worried about future food security, the “red line” has been a high-voltage one that nobody can touch. The artificial scarcity of land created the illusion of overpopulation, and was used to justify the continuation of population-control policies. Moreover, together with the centralization of fiscal authority under the 1994 tax-sharing reform, it paved the way for “land finance,” a phenomenon unique to China’s urban development.

In 1994, the Chinese central government implemented reforms that resulted in its own share of total tax revenues jumping to 56%, from 22% the previous year. Local governments’ revenues fell proportionally, even as their responsibilities remained unchanged. To make ends meet, they had to fill their coffers through other means, such as by suppressing reproduction. As I concluded in the 2007 edition of Big Country with an Empty Nest, the tax-sharing system thus played an important role in the rapid decline of the fertility rate from 2.3 in 1990 to 1.22 in 2000.

More to the point, after China embarked on housing-market reforms in 1998, income from land sales and development became a key source of local-government revenue. Desperate to generate new revenue streams, local governments started selling off one of the few assets they still controlled. As the land available for development grew scarce, urban land prices rose, promising even greater returns. Local governments started doing everything they could to prevent house prices from falling, and ideally to keep them rising. By 2021, they were generating 49% of their revenues from land sales alone.

Meanwhile, because the one-child policy reduced family size and needs, and increased parents’ concerns about retirement, Chinese household consumption has continued to decline. China’s savings rate averaged 47% between 2005 and 2020, compared to 18% in the US and 24% worldwide (excluding China). In the absence of other investment options, a large share of these savings has gone into property. With no property taxes and an expectation that housing prices would only go up, real estate came to be seen as the best investment for Chinese savers. At the same time, selective abortion of female fetuses, as a result of the one-child policy, set the stage for the current bachelor crisis, which has made buying a new home a must for marriage. As of 2021, 69% of China’s household wealth was tied up in housing, compared to just 35% in the US.


I have been watching these problems mount for years. From 2004 to 2010, I predicted repeatedly – in published articles and appearances on Chinese television – that 2012 would be a demographic and economic turning point for China. The next year, in the 2013 edition of my book, I warned that the rapid decline of the home-buying population would take the air out of China’s real-estate bubble. I also predicted that, in the meantime, high and rising housing prices would undercut China’s efforts to boost the fertility rate, because families would not have more children if they could not afford decent accommodations.

Then, in January 2015, Su Jian of Peking University’s China Center for Economic Research and I published an industry report warning of a real-estate crisis. Among the dozens of media outlets that covered my keynote speech at the report’s launch was the official People’s Daily, which ran its story under the headline: “Industry report: China’s demographic dividend ends, housing prices peak.” I then published a commentary in the official Global Times, arguing for reforms to increase the urban land supply. If Chinese authorities had heeded any of these warnings or suggestions, the current real-estate crisis could have been avoided.

But the government’s official demographers have continued to exaggerate population figures, suggesting that China’s demographic dividend will persist for a long time to come. Using these official figures, government-aligned economists such as Justin Yifu Lin, a former chief economist at the World Bank, and David Daokui Li have calculated, as recently as this summer, that the Chinese economy has the potential to grow by 8% annually until 2035, and by 6% annually from 2036 to 2050. That would make China’s overall GDP double or even triple that of the US.

Such predictions have long delighted Chinese leaders, leading them to make the egregious strategic miscalculation that, “The East is rising, and the West is declining,” and feeding into the notion that China’s inevitable ascent puts it on a collision course with the prevailing superpower (the so-called Thucydides Trap). But, in fact, China’s economic growth rate began to decelerate in 2012, falling from 9.6% in 2011 to 6% in 2019, and then to 4.5% in 2020-22.


This relative slowdown is the inevitable result of the country’s demographic trajectory. To achieve the “potential growth rate” needed to realize the “Chinese Dream of the great rejuvenation of the Chinese nation,” the authorities have been encouraging heavy investment in real estate, producing the skyrocketing housing prices that we have seen since 2015. By 2022, the prices of new homes sold in Beijing, Shanghai, Guangzhou, and Shenzhen were 1.73 times, 1.81 times, 1.80 times, and 1.97 times their 2014 levels, respectively.


From the one-child policy and the “red line” to the tax-sharing reform and the government’s more recent political ambitions, the stage has long been set for a real-estate bubble. But even worse, much of China’s economic growth over the past decade has been an overdraft on future growth that now may never materialize – at least not at the levels that were previously anticipated.

After all, the value of China’s housing market is four times the country’s GDP, compared to 1.6 in the US and 2.1 in Japan. Accounting for more than one-quarter of all economic activity and two-thirds of household wealth, China’s property sector has become a danger to the entire economy. If the property dam collapses, it will not only trigger an economic downturn and a local government debt crisis; it also may wash away China’s debt market and banking system, leading to widespread social unrest and potentially even a global financial crisis.

The Chinese government is very good at covering up small problems. But these often pile up into much bigger problems that can no longer be ignored. Chinese authorities can keep trying to reinforce the property dam, but they will be delaying the inevitable and precipitating an even greater demographic collapse as home-buying and child-rearing become unaffordable to more and more young people.

Japan has the highest fertility rate in East Asia, partly because its housing bubble burst back in the 1990s, resulting in lower prices and lower urban population density. Now that China’s total population is shrinking, especially the home-buying-age cohort, the collapse of the property dam seems inevitable. How it collapses, and how quickly, will profoundly affect China’s socio-economic position and global geopolitics in the coming decades.

Yi Fuxian: A senior scientist in obstetrics and gynecology at the University of Wisconsin-Madison, is the author of Big Country with an Empty Nest (China Development Press, 2013).

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