China’s housing market crisis intensifies as property prices halve and 81 million homes remain vacant. The country’s shrinking population and ongoing deflation exacerbate the economic strain. Experts warn that without major reforms, China risks prolonged stagnation and a widening gap with the U.S. economy.
Housing Market in Deep Trouble
China’s once-booming housing market is now struggling with significant issues. Stricter regulations on developer debt caused a sharp crash in 2021, cutting property prices by half. The scale of the crisis is evident, with an estimated 81 million vacant homes.
The population decline further worsens the situation. After peaking at 1.43 billion people in 2020, China’s population has dropped by 10 million. Experts predict a steep decline to 767 million by 2100. This shrinking population reduces demand for housing and puts long-term economic growth at risk.
Weak Consumption and Persistent Deflation
Fewer people and economic uncertainties have weakened consumer spending significantly. For six consecutive quarters, China has experienced falling consumer prices, signaling persistent deflation.
Despite efforts like stimulus packages and relaxed monetary policies, the government struggles to revive the economy. Marcus Weyerer, an analyst at Franklin Templeton, highlights that unemployment and declining real estate values further erode consumer confidence. Without bold reforms, China risks prolonged economic stagnation, similar to Japan’s struggles in the 1990s.
Export-Driven Recovery Faces Barriers
China increasingly relies on exports to sustain economic growth, as domestic consumption falters. However, international challenges mount. The European Union has imposed tariffs on Chinese goods, and the United States maintains strict trade barriers. Former President Donald Trump has proposed raising tariffs on Chinese imports to 60%, complicating matters further.
The auto industry exemplifies these challenges. In 2024, China produced 28 million vehicles, while its manufacturing capacity stands at 60 million. Domestic demand cannot absorb the surplus, and finding new export markets is becoming increasingly difficult.
Reform and Urbanization: Keys to Recovery
China’s economic future depends on significant reforms and a focus on urbanization. Experts like Wang Wen from Renmin University suggest that increasing the urban population from 65% to 80% could stimulate growth. This shift could bring 200 to 300 million people into cities, boosting consumption and economic activity.
Despite these potential opportunities, the gap between China’s economy and the United States has widened. In 2024, China’s GDP reached $18.2 trillion, far behind the U.S.’s $27.6 trillion. Without strategic reforms, China faces the risk of stagnation. However, with well-planned initiatives, the country can aim for sustainable growth and regain its economic momentum.
