China’s property market has blown up spectacularly, with house prices down 20 per cent and triggering what Newsweek is calling a “death spiral”. The Chinese economy, once the backbone of global growth, now faces an emerging crisis as unsold homes pile up across cities while major property developers go broke. This isn’t just China’s problem—Australia, America, and the West are watching nervously as their biggest trading partner teeters on the brink of financial calamity.
The Boom That Built Too Much—And Why It’s Worse Than You Think
The real estate boom in China was legendary. For the last decade, the Chinese government pumped massive resources into property development, creating gleaming skylines propped up by iron ore from Western Australia that ended up as rebar inside concrete towers. Cities across the country needed lots of apartment buildings as the population urbanised rapidly. From 2017, China went from 60 per cent urban to 67 per cent, transforming villages into sprawling metropolitan areas almost overnight—a different type of phenomenon altogether.
But they did the classic thing economies do during a property boom—they built too much. Developments now sit half finished and full of weeds, big empty shells that were supposed to reach the moon but instead became monuments to excess. The boundless demand that fuelled this frenzy has cooled down, approaching a natural limit as population flow from country to cities slows dramatically. One thing is clear: the real estate development machine that powered economic growth for two decades has ground to a halt. There’s one thing worse than when house prices go up too much—it’s when they go down too much, and that’s the bad situation China faces now.
Casualties Pile Up as Companies Collapse and Debts Remain
The fallout has been devastating and messy. Many of China’s biggest companies were property developers, and they’ve broke under the weight of unpaid debts that remain unresolved. The casualties keep piling up as debts lead to doubts about who stays solvent in this mess—a problem far messier than most predicted. In America or the West, this would turn into an acute panic and full-blown financial crisis like we saw in 2008—lending dries up, the economic system grinds to a halt, boom, and everything falls apart.
But China is trying to manage it differently, at least for now. It’s more of a rolling crisis than an immediate calamity, though the inability to find solutions grows daily. Chinese stock markets are putting on a brave face, recently pushing higher thanks to government intervention and a big push from officials. Still, the situation remains exceedingly challenging for Xi, the charismatic leader desperately trying to figure out what can take over as the economy’s backbone. The task of making life work without real estate driving growth seems almost impossible, making life hard for policymakers who are fixated on finding an alternative source of momentum.
The Manufacturing Push That Backfired—From Maximum to Zero
First, the Chinese government tried to urge the manufacturing sector to take over the job of carrying the Chinese economy forward. The factories responded enthusiastically and pumped out so many goods that they started competing against each other, pushing profits down to zero—literally zero in some cases. You want to understand why BYD utes and MG SUVs are so cheap right now? The government turned the dial on industrial production to maximum, creating an era of unusually cheap vehicles.
This era of cheap BYD Sealions and other EVs might be good for you if you’re buying up a new vehicle fleet for your driveway—reckon we should be making the most of transitioning our cars while the going is good. But of course, China has a billion people in its workforce, maybe even more. Even if every Australian could buy six MG vehicles until there are multiple in every home, it wouldn’t keep Chinese factories busy or soak up their domestic industrial production. The exports that once helped build the economy are now crimped exports, facing resistance from markets that can’t absorb so many products.
The Spending Problem—Emptying the Red Envelope Nobody Wants to Open
What China really needs—what it really, desperately needs—is to get Chinese people to consume more of their own goods and fire up domestic consumption. Here’s the problem, and it’s a big one: Chinese people are legendary savers, a phenomenon that has defined their economic system for generations. The Chinese savings glut remains one of the highest in the world at 43.2 per cent of GDP—the lowest savings rate in 20 years but still twice what Americans save, almost the highest rate globally.
If people were encouraged to spend more instead of stuffing money away—emptying the red envelope tradition of saving—they could soak up domestic demand and help their own economy transition to a consumption-based model. But the falling price of property does not encourage the confidence needed to spend—quite the opposite, it makes people save even more. With Trump making exports difficult, creating tight domestic demand conditions, and plenty of infrastructure already built across the whole country, how does China keep growing? Certainly, there’s no need for any more property development or real estate projects. The question isn’t whether they can build more—it’s whether they should, and the answer is they shouldn’t.
Best-Case and Worst-Case—What Happens When Growth Stops
One answer might be that it doesn’t grow—that China’s population is falling, and the country could follow Japan’s path where living standards stay high but economic growth is essentially absent. That’s probably the best-case scenario, where things don’t get worse but don’t get better either. People can still afford homes, even if a tiny flat or unit becomes the norm rather than exception, where wages like a junior doctor’s wage can cover living costs without excess.
The worst-case scenario is far messier and directly involves a financial calamity coming from the real estate bust-up, or an economic crisis from the inability to find growth elsewhere. This scenario sees the government fail to help citizens move forward, sees companies collapse, sees the workforce shrink as people move back to villages, and sees domestic demand dry up completely. It’s a scenario involving cascading failures that could see China suffer greatly, where economic growth becomes a distant memory and living standards plummet rather than rise or stay stable.
What This Means for Australia’s Shores—Why We Can’t Decouple
Australia’s economic luck has been underwritten by China for a couple of decades now, cushioned by their rise as our biggest trading partner by far. During their boom, we were at the mercy of positive momentum. While we correctly complain about rising property prices in Sydney where the median unit price hits $858,000—an amount a junior doctor can barely afford for even a tiny flat or unit—and Perth where property prices have risen 67 per cent in just three years, we’re fixated on our own socially corrosive housing market situation, a situation that has us reaching for solutions.
But it would be madness to think we can decouple from China and avoid being harmed if they fall, if their economy starts to really fall apart and collapse. We see the writing on the wall, we understand the risks, but we can’t help being connected. The ripple effects would hit our shores hard—our iron ore would have nowhere to go, our trading relationships would suffer, and we’d be harmed economically in ways we haven’t experienced since before their rise. It might not be long—not long at all—until we wish we could still complain about our own housing market problems, until we wish property prices were our only concern. The reality is we’ve been at the mercy of this phenomenon for years, propping up our economy on their demand, made prosperous by their consumption of our resources, and now we’re gone from confidence to concern. What emerges from this crisis will determine whether we suffer alongside them or whether we can manage our own transition to a post-China boom era.