The Chinese Property Bubble: Defanging the Chinese Dragon, By James Reed
David Llewellyn-Smith's July 17, 2025, article paints a grim picture of China's property market, describing it as "the greatest crash in the history of property" with another five years of decline ahead. This crisis, marked by falling prices, unsold inventory, and mounting debt, threatens to cripple China's economy and undermine its ambition to surpass the United States as the world's leading superpower. This blog piece argues that the Chinese property bubble's collapse, driven by structural flaws, policy inaction, and deflationary pressures, will indeed derail the "Chinese Dream" of global dominance in the short term, with ripple effects that could reshape regional dynamics, including Australia's strategic and economic landscape.
China's property sector, once a cornerstone of its economic miracle, is unravelling at an unprecedented scale. Accounting for nearly 30% of GDP at its peak, according to a 2023 Bloomberg report, real estate fuelled China's growth through massive urbanisation and speculative investment. However, Llewellyn-Smith highlights a dire situation: property prices are declining in real terms (adjusted for inflation), new inventory is shrinking, secondary listings are surging, and yields are too low to cover mortgage costs, requiring negative gearing. Developers, like China Vanke Co., are seeking decade-long loan extensions to avoid collapse, while local governments, reliant on land sales for revenue, face ballooning debt.
The numbers are staggering. A 2025 Reuters report estimates that new home prices have fallen 15–20% since 2021, with secondary market listings up 30% in major cities like Shanghai and Shenzhen. Unsold inventory stands at over 600 million square meters, equivalent to 6 million apartments, per the South China Morning Post. This glut, coupled with a lack of buyer interest, signals a market in freefall. Llewellyn-Smith's claim of a five-year horizon is supported by Goldman Sachs projections, which forecast ongoing declines until 2030 unless aggressive policy interventions occur.
The property bubble's roots lie in China's economic model: state-driven investment, lax lending, and speculative fervour. Local governments, barred from direct borrowing, relied on land sales to developers, who built on credit, creating a debt-based cycle. By 2024, property developers' debt reached $2 trillion, per Bloomberg, with Evergrande's 2021 default signalling the bubble's burst. The "extend and pretend" strategy, evident in Vanke's loan extensions, masks insolvency but cannot restore demand.
The People's Bank of China (PBoC) has resisted deep rate cuts, maintaining positive real rates despite deflationary pressures. Llewellyn-Smith argues that "deeply negative" rates could halt the crash in six months by spurring demand, but the PBoC's caution, driven by fears of capital flight and yuan devaluation, prolongs the agony. A 2025 Financial Times article notes that China's consumer price index (CPI) has been negative since mid-2024, with deflation entrenching a cycle of falling prices and reduced spending. This policy paralysis contrasts with China's earlier decisive interventions, like the 2008 stimulus, highlighting a leadership unwilling or unable to act.
The "Chinese Dream," articulated by President Xi Jinping as national rejuvenation and global leadership, hinges on economic strength. The property crash threatens this vision in the short term by undermining key pillars:
Economic Stagnation: The property sector's collapse drags down related industries, construction, steel, cement, accounting for 15% of employment, per a 2024 World Bank report. Deflation, with CPI at -0.5% in 2025, erodes consumer confidence and investment, projecting GDP growth to slow to 3.5% by 2027, per Morgan Stanley, far below the 6–7% needed to rival the U.S.
Social Unrest: Falling property values wipe out household wealth, as 70% of Chinese savings are tied to real estate, per a 2023 IMF report. Youth unemployment, at 15% in 2025, compounds discontent.
Global Influence: China's Belt and Road Initiative and military build-up rely on economic surplus. The crash diverts resources to domestic bailouts, weakening China's ability to project power. A 2025 Foreign Affairs article notes that China's lending to developing nations has dropped 40% since 2021, signalling reduced global clout.
This derailment is not permanent, China's state-controlled economy has weathered crises before, but it delays Xi's goal of overtaking the U.S. by 2035, as envisioned in the Made in China 2025 plan. The U.S., with 3.8% GDP growth projected for 2026, per the Federal Reserve, gains a strategic window.
Australia, heavily reliant on China for trade, faces significant fallout. China accounts for 30% of Australian exports, particularly iron ore and coal, per a 2024 Department of Foreign Affairs and Trade report. The property crash reduces Chinese demand for these commodities, with iron ore prices down 25% since 2023, per Trading Economics. This threatens Australia's mining sector, a backbone of its economy, and could exacerbate fiscal pressures, with unemployment at 4.3% and deficits above 2% of GDP, as noted in a July 2025 Nation First article.
Strategically, Australia's alignment with the U.S. through initiatives like the GWEO Enterprise, as discussed in a July 22, 2025, Epoch Times article, may strengthen as China's economic woes limit its regional influence. However, Australia must navigate risks, as China's desperation could lead to aggressive posturing in the Indo-Pacific, particularly over Taiwan, straining AUKUS ties.
Optimists argue that China's government can engineer a recovery, citing past interventions like the 2008 $586 billion stimulus. The PBoC's recent $140 billion injection into state banks, per a July 2025 Bloomberg report, suggests action. However, unlike 2008, the property crisis is structural, not cyclical, with oversupply and debt defying quick fixes. Stimulus risks inflating new bubbles, as seen in 2015's stock market crash, while negative rates could trigger capital flight, as warned by Nomura.
Others claim the crash won't derail China's global ambitions, given its manufacturing dominance and $3 trillion in reserves. Yet, reserves are illiquid, tied to state projects, and manufacturing faces headwinds from global decoupling, with U.S. tariffs up 20% since 2024. The property sector's drag on domestic demand outweighs these strengths in the short term.
China's property bubble crash, as Llewellyn-Smith warns, is a slow-motion trainwreck set to hobble its economy for at least five years. Structural flaws, overreliance on debt, policy inaction, and deflation, undermine the Chinese dream of global supremacy, delaying Xi's vision of overtaking the U.S. For Australia, the fallout threatens trade and economic stability, necessitating a pivot toward diversified markets and stronger U.S. ties. While China's resilience may mitigate long-term damage, the short-term reality is clear: the property crisis is a self-inflicted wound that exposes the fragility of China's economic model and derailing its ambitions, a jolly good thing too.
https://www.macrobusiness.com.au/2025/07/the-unstoppable-chinese-property-trainwreck/
"The unstoppable Chinese property trainwreck
Nobody wants to talk about how bad it is because, you know, it's China.
It's a shame because the greatest crash in the history of property is underway and has another five years to run yet.
Property keeps getting cheaper in real terms with mortgages included.
Yet nobody wants to buy it.
In fact, everybody is selling it as new property inventory falls, but only shifts into accumulating secondary listings, rising at an alarming rate.
Yields are not enough to tempt anybody. They don't even cover the mortgage. Negative gearing needed!
Developers are still not buying land.
Meaning debt, debt, debt for local governments.
There are only five years to go.
As extend and pretend overtakes the banking system, according to Bloomberg.
China Vanke Co. is seeking to extend some of its domestic bank loans by as much as 10 years, according to people familiar with the matter, a move that could help the state-backed developer reduce liquidity risks.
The Shenzhen-based builder, one of China's largest by contracted sales, has made a preliminary proposal to several major Chinese banks in recent weeks for the extension, according to the people, who asked not to be identified as the matter is private.
It could probably be ended in six months if the PBoC cut rates to where they should be: deeply negative.
Without that, nothing can stop the train wreck from permanently hobbling the Chinese economy with deflation as far as the eye can see."
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