China’s Property Crisis Continues to Weigh on Growth as Exports Gain Importance

Beijing: China’s prolonged real estate downturn continues to cast a shadow over the world’s second-largest economy, even as the government increasingly directs capital toward advanced manufacturing and strategic technologies.

The property crisis, now in its sixth year, has weakened household wealth, reduced construction activity and undermined consumer confidence. At the same time, China’s growing dependence on overseas markets is increasing the importance of exports as a source of economic growth, while intensifying trade tensions with major trading partners.

The latest reminder of the property sector’s dramatic reversal came with the sentencing of Hui Ka Yan, founder of China Evergrande, to life imprisonment. Hui was once one of Asia’s richest businessmen and became closely associated with the extraordinary expansion of China’s housing market before the sector entered a deep crisis.

Property Downturn Has Entered Its Sixth Year

China’s real estate troubles began to intensify after regulators moved in 2020 to curb excessive borrowing by highly leveraged developers. The measures exposed vulnerabilities across the sector and eventually led to a wave of defaults, unfinished housing projects and falling property values.

Evergrande defaulted in 2021 and entered liquidation proceedings in 2024. Other major developers, including Country Garden, have also faced severe financial difficulties, while China Vanke has been working to manage its debt obligations.

The consequences have extended far beyond construction companies. Housing has traditionally represented a major portion of household wealth in China, meaning falling prices can make consumers more cautious about spending.

Millions of homes have remained unfinished, while property sales, construction and land transactions have weakened. In smaller inland cities, second-hand home prices have fallen sharply from their 2020 levels, adding to pressure on household finances and confidence.

Home Prices Could Have Further to Fall

The property market has shown little evidence of a broad-based recovery.

Official data cited by Reuters showed that new-home prices in July remained under pressure. Prices declined 0.1% month on month, while the annual decline stood at 3.2%. Only a minority of the 70 cities surveyed recorded monthly increases, highlighting the uneven nature of the housing market.

Some analysts believe the adjustment still has a considerable distance to go.

Sam Radwan, chief executive of real estate consultancy Enhance International, estimates that Chinese home prices could need to fall another 40% from 2025 levels before the market reaches equilibrium. He also believes the process of clearing excess housing inventory could take years, with the broader adjustment potentially lasting a decade.

Other economists are less pessimistic and argue that the worst phase of the decline may have passed. However, even those assessments generally point toward a prolonged and gradual correction rather than a rapid return to the property boom of the past.

Why the Property Crisis Matters for China’s Economy

The housing sector was once one of China’s most important engines of domestic demand. Developers borrowed heavily, local governments relied on land sales and households invested a substantial share of their wealth in property.

That model created strong economic activity during the boom years, but its reversal has produced the opposite effect.

Falling property values can discourage households from making large purchases, while weaker construction reduces demand for steel, cement, machinery and other industrial products. Local governments also face financial pressure when land revenues decline.

China’s economic growth slowed to 4.3% year on year in the second quarter of 2026, the weakest pace in more than three years, according to Reuters.

Recent economic data also points to weakness in domestic demand. July retail sales growth was subdued, while investment and property activity remained under pressure.

Xi Jinping’s Shift Toward Manufacturing

As the property sector has weakened, President Xi Jinping has pushed China toward a different growth model.

Beijing has been directing financing and state support toward strategic industries such as semiconductors, robotics, electric vehicles, advanced technology and other forms of high-end manufacturing.

The objective is to build new sources of productivity and reduce dependence on property-led growth.

However, analysts say the emerging industries have not yet become large enough to fully compensate for the economic drag created by the housing downturn. The benefits of the new growth model are also more concentrated in particular industries and regions, rather than being distributed broadly across households.

That imbalance is one reason consumer spending has remained relatively weak.

Weak Domestic Demand Pushes China Toward Exports

One of the most important consequences of the property downturn is China’s increasing reliance on foreign demand.

When Chinese households and businesses spend less at home, manufacturers face pressure to find customers elsewhere. Strong industrial capacity allows Chinese companies to compete aggressively in overseas markets, creating an important outlet for production.

China’s trade surplus has more than doubled since 2019, according to the Reuters analysis, contributing to concerns in the United States, Europe and emerging economies about the growing presence of Chinese goods in their domestic markets.

This has raised fears of a new wave of competition sometimes described as “China Shock 2.0.” Trading partners worry that rapidly expanding Chinese exports could put pressure on their own manufacturers and employment.

The issue has become particularly sensitive in sectors such as electric vehicles, machinery, steel, batteries, solar equipment and other manufactured products.

Trade Tensions Could Intensify

China’s export strength is increasingly becoming an international economic issue.

The European Union and United States have raised concerns about Chinese industrial overcapacity and the effect of low-priced imports on domestic producers. Emerging economies are also watching the trend closely because an increase in Chinese exports can make it harder for their own manufacturing industries to expand.

For Beijing, however, exports provide an important source of demand at a time when domestic consumption remains relatively weak.

That creates a difficult balancing act. China needs stronger household spending to reduce its dependence on foreign markets, but restoring consumer confidence is difficult while property values remain depressed.

State-Owned Developers Gain a Bigger Role

The collapse of many private property companies has also changed the structure of China’s real estate industry.

State-owned developers now have a much stronger position in the market, while banks have become increasingly reluctant to provide financing to heavily indebted private developers.

Market participants expect the government’s role in the property sector to become even more significant as authorities attempt to manage unfinished housing projects, stabilize the market and prevent further financial stress.

This represents a major shift from the era when private developers dominated China’s rapid housing expansion.

A Difficult Transition Ahead

China now faces the challenge of managing two very different economic stories.

On one side, advanced manufacturing, technology and exports remain sources of strength. On the other, the property market continues to weigh on household wealth, domestic consumption and investment.

Recent analysis from Chatham House has highlighted the connection between weak domestic spending and stronger exports, noting that falling property prices have damaged household confidence while encouraging manufacturers to look increasingly toward international markets.

The government’s strategy of moving capital away from property and toward strategic industries could eventually create a more technology-driven economy. But the transition is unlikely to be painless.

For millions of homeowners, developers and local governments, the property downturn remains an immediate economic problem. For China’s trading partners, meanwhile, the country’s growing export dependence is creating a different challenge.

The central question for Beijing is therefore no longer simply how to revive the housing market. It is whether China can successfully build a new growth model based on technology and manufacturing while simultaneously restoring household confidence and domestic consumption.

The sentencing of Evergrande founder Hui Ka Yan may symbolize the end of China’s property boom, but the economic consequences of that boom’s collapse are still unfolding.