China has been the engine room of the world economy since 2008 but now the economy is slowing and the housing market is in a steep downturn. The slow up in the Chinese economy and housing market could create major risk off in financial markets and firm safe haven currencies...

 The Worlds Most Important Market

The chart below clearly shows the size of Chinese housing against other assets.

Approximately 70% of household wealth in China is stored in property and China has Real Estate worth around $60 Trillion which is a whopping 30% of China's GDP! The problem is after years of excess the property market is collapsing and it will take China’s GDP down with it. TS Lombard writes: "China is entering a structural slowdown driven by the “3 Ds”: debt (property), deglobalization, and demographics. Property is the most pressing issue: developers face an acute liquidity crunch that risks widespread financial contagion.

Consider these staggering facts: According to the IMF “China’s residential housing sales averaged 1.5-1.6 billion square meters per year from 2018-2021, about 30-50 percent higher than estimated annual demand for the next few years based on demographic and housing stock factors.” 

The latest estimates by Rogoff and Yang 2022 suggest that real estate development, directly and indirectly, has driven 25 percent of total economic activity in China. On the basis of census data, Rogoff and Yang estimate that 43 percent of all homes in China had been built since 2010, 68 percent since 2000, and 88 percent since 1990. If you put this in relation to the total population it implies that in a single generation, China has built enough homes to house a billion people! A huge amount of properties are empty house prices are falling and will continue to fall...

The Slow-Up and the Potential for a Crash

Trading the Slow up In China

Financial markets are relaxed about the outlook for China but the whole economy is slowing and a crash in the housing market could happen soon. In terms of trading the downturn in China, the safe haven currencies are a long term buy against the Yuan – so USD, JPY, CHF V CNH. The safe haven currencies are also a buy against all currencies with heavy exposure to China so the AUD, NZD, ZAR, and SGD.