The zero-COVID strategy and real estate issues drive substantial uncertainty

For decades, China has been a reliable growth engine for the world. That time has come to an end. China’s economy is now one of the global portfolio’s biggest sources of uncertainty, and its growth will largely be determined by two factors: zero-COVID and the real estate market. 

Contrary to what many had hoped, the zero-COVID policy will not be scrapped immediately following the 20th Party Congress. Instead, as China’s most vulnerable are still far from sufficiently vaccinated, we expect China to remain closed until it can roll out an mRNA vaccine developed by one of its own companies. In the meantime, it will continue to pursue a zero-COVID strategy that weighs heavily on growth. 

Similarly, housing market issues are raising serious headwinds to growth. Highly leveraged developers, under pressure from dwindling sales, mortgage boycotts, and debt repayment deadlines, are struggling to complete projects. Government intervention will be required to stop the vicious cycle, but aid has not been forthcoming. The crisis’s outcome will shape China’s growth—both in the short and long terms.

Our 2023 China scenarios investigate the intersection between China’s zero-COVID policies and its property market outlook and model different growth outlooks for the economy depending on how these play out.

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