China is rightly considered an economic wonder. Since the late 1970s, when it was one of the most backward nations in the world, it has become an economic powerhouse and a formidable rival to the United States and the West generally. Given this record, observers and journalists can be excused for anticipating that China will soon surpass America’s economic might and assume the premier position among the world’s economies with everything that status implies. But the future seldom emerges as a straight line from the past. Chinese prospects today must take account of the country’s changing economic trajectory, especially the array of serious economic problems it faces, all of which in one way or another reflect Beijing’s policy missteps and mismanagement.
Exhibit one among these considerations is China’s ongoing property crisis, which began in 2021 when the giant residential developer Evergrande admitted that it could no longer meet its business and financial obligations. Evergrande was only the first of many such failures. Property development once constituted some thirty percent of China’s GDP, so these failures almost immediately became a huge impediment to the country’s growth prospects. Housing starts stalled and then began a long decline. And while some developers this year have at last begun to reschedule their finances, the situation has yet to turn around, and according to analysts at S&P Global, declines will likely continue into 2027 or longer.
The ills imposed by this situation go far beyond the immediate effects on this once-powerful growth engine. The spread of failures has restricted China’s financial resources generally, limiting investment and expansion throughout the economy for private firms as well as state-owned enterprises. The failures have also prevented the completion of millions of apartments for which Chinese households had prepaid. Many of these frustrated homeowners have refused to pay on the mortgages associated with these non-existent units, putting yet more strain on Chinese finance. And because this collapse of home-building and home-buying has depressed real estate prices almost twenty percent since the start of the crisis, just about all Chinese homeowners have suffered declines in their net worth, crimping consumer spending and impairing the economy’s growth prospects in yet another quarter.
