In recent decades, economic growth in China has been largely driven by real estate. This sector accounted for up to 30% of the country’s GDP in 2020. The Chinese people’s low confidence in the stock market, coupled with the fact that local governments’ source of income was the sale of land to developers, meant that up to 60% of the country’s citizens’ assets were tied up in real estate. When companies such as Evergrande, which operate on a pyramid model (the money from pre-orders went to repay past obligations), went bankrupt, millions of people were left with mortgages on homes whose construction had been halted or which had largely become vacant. The result is a sharp decline in real estate investment, as shown in the chart below. As you can see, the decline in investment in November 2025 compared to November 2024 was more than 15%, and this trend appears to be deepening month by month. This confirms the capital flight from Chinese real estate.
Source: Chinese Statistics Bureau. Figures for fixed asset investment and real estate investment are given as cumulative change from the previous year. Data for January and February have been combined.
The chart above contains some other important data from the Chinese economy, such as investment in fixed assets like factories, bridges, roads, i.e., infrastructure in general. Such spending has artificially improved economic performance while simultaneously indebting local governments. Within three months, we are facing a decline in this type of investment, which means that another engine of China’s economic development is beginning to collapse.
The Chinese people’s dependence on real estate confirms the sharp decline in retail sales momentum, which rose by only 1% in November compared to the previous year. As the housing market crisis depleted citizens’ savings, they feel less secure and prefer to spend less money. The result is deflation, because people prefer to postpone purchases, knowing that after a while it will become even cheaper.
Unemployment has also risen. When more than 20% of 18- to 24-year-olds were out of work in 2023, the government decided to suspend publication of the results for six months in order to “optimize” the methodology. And lo and behold: unemployment suddenly fell by more than 6% in six months! Despite all such government manipulations, nearly 17% of young people are out of work—that’s not good news.
The response of the comrades in Beijing to the economic crisis is to focus even more on exports. This is confirmed by the maintenance of stable growth momentum in industrial production (see chart). China’s aggressive expansion into foreign markets is therefore directly linked to a difficult domestic situation. If the outlook at home does not improve, the central government will flood the entire world even more with its cheap products (as can already be seen in the European car market).
