China reported its economy grew by 5% last year, meeting official government targets for the second consecutive year. This steady growth, however, stands in stark contrast to a severe and worsening crisis in the country's massive real estate sector, which has seen property values plummet and consumer spending stall.
While a record trade surplus of $1.19 trillion in 2025 helped bolster the national figures, the domestic economy is grappling with the fallout from a housing market crash that began four years ago. New home sales have hit a 15-year low, and the crisis is now directly impacting household wealth and local government finances.
Key Takeaways
- China's economy officially grew by 5% in 2025, driven by strong export performance.
- The property sector, once a quarter of the economy, is in a severe downturn with home sales at their lowest in over 15 years.
- Plummeting home values have eroded household savings, leading to a sharp decline in consumer spending.
- Local governments, dependent on land sales, are facing significant revenue shortfalls.
- The market for existing homes has frozen, with properties sitting unsold for an average of nearly two years.
An Economy of Contradictions
On the surface, China's economic performance appears stable. The National Bureau of Statistics announced on Monday that the country had successfully met its growth target, with the economy expanding 5% in 2025. The final quarter of the year saw a 4.9% growth rate when annualized.
This resilience is largely attributed to the country's powerful export engine. A boom in international trade produced a record-setting surplus, effectively masking deep-seated problems within the domestic economy. But for millions of ordinary citizens and local officials, the national statistics do not reflect their reality.
The primary source of this internal weakness is the real estate market. Once representing roughly a quarter of China's entire economy, its prolonged collapse is sending shockwaves through every level of society.
A Pillar of the Economy Falters
For decades, real estate was considered the safest and most reliable investment for Chinese families. The sector's growth fueled construction, created jobs, and generated enormous revenue for local governments through land sales. This model of growth has now reversed, leaving a trail of economic challenges.
The Deep Freeze in the Housing Market
The numbers paint a bleak picture of the property sector. Sales of new homes have fallen to their lowest point in more than a decade and a half. Investment in fixed assets, including new apartment buildings and office towers, experienced its first annual decline since 1989, dropping 3.8% last year.
For existing homes, the situation is even more dire. Official data suggests that prices have fallen by an average of 20% since their peak in 2021, a decline comparable to what the United States experienced during its 2008 housing crisis. However, unofficial reports indicate the actual price drops could be twice as severe in many areas.
A report from the China Index Academy, a real estate research firm, found that homes listed for sale now remain on the market for an average of 22.2 months before a transaction is completed. This has created a market gridlock where sellers are unwilling to accept steep losses and buyers are waiting for prices to fall further.
This has led to a collapse in market confidence. Zoe Zhao, a 27-year-old civil servant in the city of Xi'an, purchased a home with her family in late 2024 after prices had already fallen, only to watch them drop even more. "It’s hard to say that I don’t regret it," she commented, adding, "I’m just glad we didn’t buy at the peak."
Ripple Effects on Spending and Governance
The housing crisis is not contained to property developers and homeowners. Its impact is now clearly visible in national retail sales figures. As families watch their primary source of wealth—their home—decline in value, they have significantly cut back on spending.
In November, retail sales growth was the weakest since the end of the pandemic. By December, the situation worsened, with sales falling 0.1% from the previous month's low base. This lack of consumer demand from both urban and rural households is a major concern for economic planners in Beijing.
Local governments are also under immense pressure. They have historically relied heavily on revenue from selling land to developers. With the property market frozen, that crucial income stream has dried up, making it difficult for some municipalities to pay their own civil servants and fund public services.
"The sharp decline in the real estate sector can almost entirely explain the lackluster economic performance over the past three years," wrote Zhu Tian, an economics professor at the China Europe International Business School in Shanghai, in a recent analysis.
Searching for a Solution
Chinese authorities are aware of the risks and have taken steps to manage the situation. Officials have been promoting an upbeat assessment of the economy to try and restore public confidence. At the same time, online discussions and data releases that paint a pessimistic picture of the real estate market have been subject to censorship.
Several proposals are being considered to stabilize the market. One idea involves local governments purchasing unsold apartments from struggling developers and converting them into affordable housing. However, with their own finances under strain, it remains unclear how local authorities could afford to subsidize these transactions without developers offering major discounts.
The fundamental challenge is a mismatch between supply and demand. Years of overbuilding have created a vast surplus of housing. China had about 440 square feet of housing per urban resident in 2024, a significant increase from 340 square feet just 15 years prior. Compounding this issue is a demographic shift, with declining marriage and birth rates reducing the number of new households seeking to buy homes.
While some analysts in China predict a recovery could begin this year, many international experts are less optimistic. Sam Radwan, CEO of the consulting firm Enhance International, noted that he had never seen homes sit unsold for as long as they currently do in China. After recent travels in the country, he described the sentiment among real estate professionals as extremely pessimistic. "It’s not going to go away in the next decade," he said.
