If there was a sick man of the corporate bond universe, it would be Chinese real estate. This much is clear from some work we have done sifting through the $13 trillion Markit iBoxx bond indices. And this ailing patient is about to be handed over to China’s banking system.

We first looked at China’s real estate bubble back in 2019, when issuers were flocking to raise funding from dollar-based investors, and then in September 2021, when the market was starting to unravel.

Since then, the problems have deepened. Sales of new properties by China’s biggest developers are down by 32% year-on-year, while 50 million apartments in the country are sitting unoccupied, a 12% vacancy rate. As a result, the overseas funding market for developers has now closed as we can see in the Risky Finance corporate bond history tool.

In our first chart, we track the total outstanding amount of Chinese real estate bonds covered by Markit iBoxx, split by rating category. From its peak of $173 billion at the end of June 2020, this total had fallen to just $57 billion by the end of last month, a 67% decline.