中国房地产危机与产业升级的博弈
Ghost cities, trillions in distressed debt and the biggest bankruptcy in Chinese history. Just five years ago, the world was obsessed with China's property collapse. But today, the headlines have moved on to incredibly advanced electric vehicles, solar dominance and hyper advanced robots. Leaving a massive question unanswered. What actually happened to China's massive housing crisis has essentially been canceled by a massive boom in advanced industries. Or is it still there in the background, silently dragging down China's economy while the world is distracted by shiny new Chinese technologies?
Original English
Ghost cities, trillions in distressed debt and the biggest bankruptcy in Chinese history. Just five years ago, the world was obsessed with China's property collapse. But today, the headlines have moved on to incredibly advanced electric vehicles, solar dominance and hyper advanced robots. Leaving a massive question unanswered. What actually happened to China's massive housing crisis has essentially been canceled by a massive boom in advanced industries. Or is it still there in the background, silently dragging down China's economy while the world is distracted by shiny new Chinese technologies?宏观经济数据与增长可持续性分析
Answering these questions was not easy, since China is increasingly restricting the data they share with the world. But there are now two pieces of really exciting research that I just had to share with you today. First, a comprehensive new macro economic paper was recently released that maps China's current trajectory directly against Japan's infamous property bust induced last decade. But before getting into that paper, we first need to contextualize it with worrying new data from China. While we know from the experience of Japan, Europe and the US that massive housing busts can cause so-called great depressions, great recessions, and even lost decades, if we look at China's macroeconomic data, it's really weathered the storm remarkably well.
Original English
Answering these questions was not easy, since China is increasingly restricting the data they share with the world. But there are now two pieces of really exciting research that I just had to share with you today. First, a comprehensive new macro economic paper was recently released that maps China's current trajectory directly against Japan's infamous property bust induced last decade. But before getting into that paper, we first need to contextualize it with worrying new data from China. While we know from the experience of Japan, Europe and the US that massive housing busts can cause so-called great depressions, great recessions, and even lost decades, if we look at China's macroeconomic data, it's really weathered the storm remarkably well.增长放缓与固定资产投资的结构性变化
While economic growth has slowed down from around 10% to 5% and more recently, 4.5%, that's still something that rivaling economies like Japan and the US can only dream about. However, for China, the main worry is not about low growth, but rather about how sustainable that growth is. You see, before 2022, property investment was one of China's main engines of growth. But as you can see here, not only has that growth turned negative, it's getting worse each year. And so far, 2026 looks like the worst year yet, with property investment falling by a whopping 16.2%. But property investment is part of overall fixed asset investment, which also includes infrastructure and notably factory investments. And actually, after a Covid drop and subsequent recovery, growth in fixed asset investments has hovered around 4%. But worryingly, this picture has now flipped fixed investments, which include infrastructure, property and factory investments, are now dragging down growth by 4.1% in 2026. And in my opinion, the bigger picture is even more worrying because total fixed investments now look like they have, after years of almost exponential growth, have genuinely plateaued.
Original English
While economic growth has slowed down from around 10% to 5% and more recently, 4.5%, that's still something that rivaling economies like Japan and the US can only dream about. However, for China, the main worry is not about low growth, but rather about how sustainable that growth is. You see, before 2022, property investment was one of China's main engines of growth. But as you can see here, not only has that growth turned negative, it's getting worse each year. And so far, 2026 looks like the worst year yet, with property investment falling by a whopping 16.2%. But property investment is part of overall fixed asset investment, which also includes infrastructure and notably factory investments. And actually, after a Covid drop and subsequent recovery, growth in fixed asset investments has hovered around 4%. But worryingly, this picture has now flipped fixed investments, which include infrastructure, property and factory investments, are now dragging down growth by 4.1% in 2026. And in my opinion, the bigger picture is even more worrying because total fixed investments now look like they have, after years of almost exponential growth, have genuinely plateaued.消费负增长与出口依赖的困境
But of course, investment is just one of the three major components of economic growth, alongside consumption and exports. This brings us to the second piece of worrying data, which is that, while Chinese consumer spending was growing relatively slowly from our Chinese perspective, at about 3% after the real estate bust. This has now turned negative in May, which only happened in the last couple of years during Covid. On the other hand, as most of the world knows all too well, Chinese exports are still absolutely exploding. However, the problem for China is that it is now so big that it cannot really export its way out of trouble. Because if we look at the composition of Chinese GDP historically, even though China, we all know has been an exporting powerhouse. These are gray bars at the top. They represent exports. That is just a minor minor fraction of China's total economy. Instead, local consumption, which has been falling and investments, they are far more important for the Chinese economy as a whole. So if we see that now both investment in total and consumption is negative, and that's really something to worry about.
Original English
But of course, investment is just one of the three major components of economic growth, alongside consumption and exports. This brings us to the second piece of worrying data, which is that, while Chinese consumer spending was growing relatively slowly from our Chinese perspective, at about 3% after the real estate bust. This has now turned negative in May, which only happened in the last couple of years during Covid. On the other hand, as most of the world knows all too well, Chinese exports are still absolutely exploding. However, the problem for China is that it is now so big that it cannot really export its way out of trouble. Because if we look at the composition of Chinese GDP historically, even though China, we all know has been an exporting powerhouse. These are gray bars at the top. They represent exports. That is just a minor minor fraction of China's total economy. Instead, local consumption, which has been falling and investments, they are far more important for the Chinese economy as a whole. So if we see that now both investment in total and consumption is negative, and that's really something to worry about.房地产危机信号与两国的对比研究
But what's causing it? Well, we know that Chinese industry is still stronger than ever. And we know from history that massive housing busts can suppress economic growth for years, if not decades. So Chinese property investments getting worse and worse, more negative and more negative, is actually a really strong signal that the property crisis is not just still ongoing, but that it may actually be getting worse. That is what it looks like. But is that actually the case? Is China's housing crisis to blame? This gets us to a new, detailed paper on the Chinese housing bubble that is called a Tale of Two Countries: the real estate crises in 1990s Japan and contemporary China, where Harvard professor Kenneth Rogoff and IMF economist Yuanchen Yang not only present new, super detailed city level data on China's housing crisis. They also compare that to new super detailed data from Japan's property bust. So how exactly has China's housing crisis been going? As you can see here, it's still ongoing. There is no sign of prices stabilizing or coming back up. And notably, second-tier cities like Xiamen, Quanzhou, Xiangyang, and Zhengzhou. I've seen an almost 30% drop in house prices since their peak. Meanwhile, top tier cities like Beijing and Shanghai hidden over there have only seen a 10% reduction in house prices so far. Comparing that to less detailed data on Japan's housing bust, where house prices dropped to around 40% of their peak. The authors conclude that if China's adjustment unfolds in a similar way as Japan, it would mean China has not gone half way through the transition. But by contrast, if China's path is eventually comparable to the United States, it appears to have already covered roughly two thirds of the adjustment before reaching the bottom.
Original English
But what's causing it? Well, we know that Chinese industry is still stronger than ever. And we know from history that massive housing busts can suppress economic growth for years, if not decades. So Chinese property investments getting worse and worse, more negative and more negative, is actually a really strong signal that the property crisis is not just still ongoing, but that it may actually be getting worse. That is what it looks like. But is that actually the case? Is China's housing crisis to blame? This gets us to a new, detailed paper on the Chinese housing bubble that is called a Tale of Two Countries: the real estate crises in 1990s Japan and contemporary China, where Harvard professor Kenneth Rogoff and IMF economist Yuanchen Yang not only present new, super detailed city level data on China's housing crisis. They also compare that to new super detailed data from Japan's property bust. So how exactly has China's housing crisis been going? As you can see here, it's still ongoing. There is no sign of prices stabilizing or coming back up. And notably, second-tier cities like Xiamen, Quanzhou, Xiangyang, and Zhengzhou. I've seen an almost 30% drop in house prices since their peak. Meanwhile, top tier cities like Beijing and Shanghai hidden over there have only seen a 10% reduction in house prices so far. Comparing that to less detailed data on Japan's housing bust, where house prices dropped to around 40% of their peak. The authors conclude that if China's adjustment unfolds in a similar way as Japan, it would mean China has not gone half way through the transition. But by contrast, if China's path is eventually comparable to the United States, it appears to have already covered roughly two thirds of the adjustment before reaching the bottom.经济影响传导机制的差异分析
So what does that mean for China's economy? Is a Japan style, decade long stagnation still the most likely scenario, or should we expect a swift bounce back in just a few years? As we saw in the United States, to answer that question, Rogoff and Yang identified three channels through which housing busts affect the economy. If there is no credit crunch, and that's a big if, you see, as various research papers have shown, after the 2007 crisis, Western banks severely restricted borrowing to firms right after 2007 helped turn an asset bust into what we now know as the Great Recession. However, if we look at Chinese bank lending data, we can see that while Chinese state owned banks did slowly reduce lending to the property sector, they increased lending to the advanced industries that dominate the news cycle today by massive amounts, almost 40%, and therefore overall lending growth remained positive around 10%. That's very different than what happened during the Great Recession in the West. So if unlike the US after 2007, China did not experience a credit crisis, but rather a credit shift from property to manufacturing, then why are both investment and consumption now in so much trouble?
Original English
So what does that mean for China's economy? Is a Japan style, decade long stagnation still the most likely scenario, or should we expect a swift bounce back in just a few years? As we saw in the United States, to answer that question, Rogoff and Yang identified three channels through which housing busts affect the economy. If there is no credit crunch, and that's a big if, you see, as various research papers have shown, after the 2007 crisis, Western banks severely restricted borrowing to firms right after 2007 helped turn an asset bust into what we now know as the Great Recession. However, if we look at Chinese bank lending data, we can see that while Chinese state owned banks did slowly reduce lending to the property sector, they increased lending to the advanced industries that dominate the news cycle today by massive amounts, almost 40%, and therefore overall lending growth remained positive around 10%. That's very different than what happened during the Great Recession in the West. So if unlike the US after 2007, China did not experience a credit crisis, but rather a credit shift from property to manufacturing, then why are both investment and consumption now in so much trouble?三大非金融传导渠道的经济逻辑
This brings us to the three non-financial channels described by Rogoff and Yang. First, there's this so-called investment channel. And to understand how this works, have a look at this graph. First, the blue lines show residential real estate investment over GDP in Japan, which peaked in the 1980s and 1990s at around 6%, after which they dropped to 3%. Meanwhile, the red bars represent Chinese property investment, which shot up much faster from about 2% in 97 to about 10% in 2020. Today, it has already dropped to about 5%. Now, if you follow the logic of the investment channel, then less property investment is really bad for the economy because it means less business for architects, less business for builders, realtors, kitchen sellers, electricians, furniture shops and so on and so on. And as we have seen, negative property investment was definitely a huge drag on the Chinese economy for the past years, but so far it has been offset by a massive investment boom in manufacturing, meaning that total investment remains positive until this year, when property investments were worse than ever. And at the same time, China's leadership started its so-called anti involution campaign, which is an effort by the government to curb hyper competition and overcapacity in crowded sectors like solar and EV manufacturing, which meant that local governments had to reduce excessive investments in the sectors that they had previously made to hit their GDP growth targets.
Original English
This brings us to the three non-financial channels described by Rogoff and Yang. First, there's this so-called investment channel. And to understand how this works, have a look at this graph. First, the blue lines show residential real estate investment over GDP in Japan, which peaked in the 1980s and 1990s at around 6%, after which they dropped to 3%. Meanwhile, the red bars represent Chinese property investment, which shot up much faster from about 2% in 97 to about 10% in 2020. Today, it has already dropped to about 5%. Now, if you follow the logic of the investment channel, then less property investment is really bad for the economy because it means less business for architects, less business for builders, realtors, kitchen sellers, electricians, furniture shops and so on and so on. And as we have seen, negative property investment was definitely a huge drag on the Chinese economy for the past years, but so far it has been offset by a massive investment boom in manufacturing, meaning that total investment remains positive until this year, when property investments were worse than ever. And at the same time, China's leadership started its so-called anti involution campaign, which is an effort by the government to curb hyper competition and overcapacity in crowded sectors like solar and EV manufacturing, which meant that local governments had to reduce excessive investments in the sectors that they had previously made to hit their GDP growth targets.财富预期与消费渠道的衰退
But it gets worse. The second channel through which housing busts affect the economy is that a lot of households used to save for the future via having a second or third property. And as house prices went up, households felt rich and therefore were confident that they could afford to spend more and more. However, now that housing prices are dropping for years, households are actually seeing their wealth shrink and therefore logically are spending less. This is called the consumption channel. Finally, the authors show that in Japan, areas where housing prices dropped fastest households also became increasingly pessimistic, reducing their consumption even more. And they call this the sentiment channel. And using a large language model, they see that the same effect is clearly happening in China as well, especially in second tier cities where the housing crisis has hit the hardest. Consumers are increasingly pessimistic about China's economic future.
Original English
But it gets worse. The second channel through which housing busts affect the economy is that a lot of households used to save for the future via having a second or third property. And as house prices went up, households felt rich and therefore were confident that they could afford to spend more and more. However, now that housing prices are dropping for years, households are actually seeing their wealth shrink and therefore logically are spending less. This is called the consumption channel. Finally, the authors show that in Japan, areas where housing prices dropped fastest households also became increasingly pessimistic, reducing their consumption even more. And they call this the sentiment channel. And using a large language model, they see that the same effect is clearly happening in China as well, especially in second tier cities where the housing crisis has hit the hardest. Consumers are increasingly pessimistic about China's economic future.结论：未来走势预测与产业结构调整
So, in conclusion, how has China's housing bust been going? Well, it's still very much ongoing. But because China shifted to a massive manufacturing boom in investment and lending via its state owned banks, we have not seen the effects as strongly yet as Japan in the 1990s or the US after 2007. But now that China's anti-inflation campaign is reining in manufacturing lending, we are starting to see the macroeconomic effects of China's property bust more clearly again. But how long will that take? Will China's housing bust be more like the US, Japan or worse? Given that the US private banks cleared that that much more quickly, I think the answer is that China's housing bust will probably be more like that of Japan. And if China's housing bust will play out like Japan, we can expect another six years of lackluster consumption. And if the anti-inflation campaign continues, we can now expect much worse investment growth in China as well. China's strategy has been so far to rely on manufacturing investments to compensate for this. But with households suffering from the real estate bust unable to buy enough solar panels, EVs and robots, this excess production inevitably was sent overseas. But if we look at China's massive economy, we can clearly see the problem. China is simply too big to rely on exports to get out of this economic crisis. So with the manufacturing investment boom coming to an end, I think it's likely that the world will again have to start worrying about China's continuing housing crisis. But for a more detailed dive into the other side of its economy, its high tech success and export success, I highly recommend you check out some key follow up articles from our advertising sponsor, The Economist. Specifically, start with a deep dive on how big China's emerging industries actually are. Then follow up with this deep dive on how these industries compare to China's old economy. And finally, this take on why China's export success is making a trade war between the EU and China seem inevitable. As these analysis show, The Economist delivers insights that truly help you see the bigger picture. And this is why I highly recommend you subscribe to The Economist, which now offers an exclusive 35% discount for many macro viewers. Whether you prefer your daily journalism in The Economist app or you're like me and enjoy catching up on the global economy over the weekend with a cup of coffee and the print edition, you'll always stay on top of the latest global developments and support journalism that values factual information, integrity and an independent point of view. So don't miss out. Click a link in the description or top comment below, or head over to economist.com/money Macro to claim your exclusive 35% discount today.
订阅与深度阅读推荐
For a more detailed dive into the其他经济侧，its high tech success and export success, I highly recommend you check out some key follow up articles from our advertising sponsor, The Economist. Specifically, start with a deep dive on how big China's emerging industries actually are. Then follow up with this deep dive on how these industries compare to China's old economy. And finally, this take on why China's export success is making a trade war between the EU and China seem inevitable. As these analysis show, The Economist delivers insights that truly help you see the bigger picture. And this is why I highly recommend you subscribe to The Economist, which now offers an exclusive 35% discount for many macro viewers. Whether you prefer your daily journalism in The Economist app or you're like me and enjoy catching up on the global economy over the weekend with a cup of coffee and the print edition, you'll always stay on top of the latest global developments and support journalism that values factual information, integrity and an independent point of view. So don't miss out. Click a link in the description or top comment below, or head over to economist.com/money Macro to claim your exclusive 35% discount today.