China's Property Crash: The Slow-Motion Meltdown and its Threat to Global Dominance, By James Reed

The Chinese property sector, once the turbocharged engine of the world's second-largest economy, is in the throes of a protracted crisis that's now entering its sixth year. As of October 2025, recent data paints a grim picture: Floor space sold dropped 10.5% year-on-year in September, new home starts fell 14.4%, and real estate investment plummeted 21.1%. Analysts like those at S&P Global Ratings describe the slump as "worse than expected," with no quick rebound in sight. But is this crash, often likened to a "slow-motion" disaster, merely halfway through, as some suggest? And more critically, could it derail China's ambitious quest for global supremacy under Xi Jinping? In this discussion, I'll explore the roots of the crisis, its current state, economic ripple effects, and whether it truly hampers Beijing's imperial aspirations, from the Belt and Road Initiative (BRI) to military expansion and tech dominance, fallout of decades of unchecked growth colliding with deliberate policy shifts.

The sector boomed post-2008 global financial crisis, fuelled by massive stimulus that turned real estate into a cornerstone of GDP, peaking at around 30% of economic activity. Developers like Evergrande borrowed aggressively, amassing trillions in debt to build ghost cities and speculative towers. Local governments, reliant on land sales for up to 30% of revenue, encouraged the frenzy through shadowy "local government financing vehicles" (LGFVs), ballooning hidden debts to an estimated $13 trillion.

The tipping point came in 2020 with Xi's "three red lines" policy, a crackdown on leverage to curb speculation and enforce his mantra that "houses are for living, not for speculation." Metrics like debt-to-cash and debt-to-equity ratios forced developers to deleverage, exposing vulnerabilities. Evergrande, the poster child, defaulted in 2021 with $300 billion in liabilities, sparking contagion. Other giants like Country Garden and Sunac followed, with defaults rippling through shadow banks and trusts. Oversupply exacerbated the pain: By 2023, 60-80 million empty apartments sat idle, equivalent to twice the U.S. housing stock. Mortgage boycotts in 2022, unfinished projects, and fraud (e.g., Evergrande overstating revenue by $78 billion) deepened the rot.

External factors piled on: The COVID-19 lockdowns stalled construction, while aging demographics (birthrate at 1.09) and youth unemployment curbed demand. Unlike the U.S. 2008 subprime crisis, China's is a controlled deflation, prices falling steadily without a total implosion, thanks to state interventions.

Fast-forward to 2025: The crisis shows no end. New home prices fell at the fastest pace in 11 months in September, with second-hand prices sliding too. Sales by value dropped 7.6% in the first nine months, worsening from prior periods. Construction starts are down nearly 20% year-to-date, inventory balloons, and Golden Week sales tanked 38% week-on-week. Evergrande was delisted in August, Vanke teeters on takeover, and Country Garden's losses narrowed but remain massive (12.8 billion yuan in H1 2024).

Is it halfway? Reuters notes prices fell less than expected (7.5% projected for 2025), but market weakness endures. The New York Times reports no resolution five years in, with inventory double historical averages and sellers pulling listings amid lowball offers. X posts echo frustration: Users debate if it's a "crash" or overproduction, with some mocking Western glee amid China's resilience. Yet, deflationary signals (CPI <1%, producer prices falling) point to structural pain.

Government responses? Targeted bailouts: A 300-billion-yuan facility for affordable housing, eased mortgage rules, and "whitelist" loans (4 trillion yuan by October 2024). Beijing claims the sector "bottomed out" in October 2024, but IMF downgraded 2025 growth to 4.5%, citing worsening conditions. Outlook: S&P predicts 6-7% sales drop in 2026, with no full recovery until oversupply clears, potentially another decade.

Property's drag is profound: It shrank from 30% to 19% of GDP by 2024, leaving a void unfilled by tech or manufacturing. Local revenues from land sales plunged 27% in Q1 2023, straining budgets. Shadow banks like Zhongzhi collapsed with $64 billion holes. Broader effects: Deflation, weak consumption (households hoard amid eroding wealth), and job losses in construction (tens of millions impacted). Youth unemployment and demographic cliffs compound it. Yet, China's economy chugs at 4.7% GDP growth in Q2 2024, buoyed by exports and industrial policy.

Will It Derail China's "Quest to Be Emperor of the World"?

Xi's vision, global leadership via BRI, military modernisation, tech self-sufficiency, and "common prosperity," faces headwinds, but the crash may slow, not stop, it.

Economic Strain on Ambitions: Property's GDP hit (down to 6.27% in 2024) reduces fiscal firepower for BRI ($1 trillion invested, but defaults rise). Local debts curb infrastructure abroad; IMF warns of global spillovers. Deflation exports cheap goods, sparking trade wars (e.g., U.S./EU tariffs), eroding soft power. Yet, China adapts: Record exports in EVs/solar offset domestic woes.

Military and Geopolitical Flex: Budgets prioritise security, defence spending up 7.2% in 2025 despite slowdown. Taiwan tensions persist; BRI evolves to "small and beautiful" projects. X posts highlight Xi's "industrial blitz" in quantum/AI, sustaining dominance bids.

Long-Term Derailment?: Yes, if unaddressed, aging population, debt traps, and flat productivity could trap China in middle-income status. But Xi's control allows pivots: From property to "new productive forces" like tech. India Foundation notes "dual dilemma," domestic hurdles vs. ambitions, but China's resilience (e.g., thriving homegrown firms) suggests slowdown, not collapse.

In sum, the crash, likely past halfway but far from over, hobbles growth but doesn't dethrone Xi's empire-building. Beijing's opacity and adaptability mean global rivals shouldn't celebrate yet. The China threat remains.

https://www.macrobusiness.com.au/2025/10/chinese-property-crash-has-only-a-decade-to-go/