How it happened
For decades, China's property sector was the engine of its economic growth. Local governments relied on land sales for revenue; households invested heavily in property as the primary store of wealth; developers took on enormous debt to fund rapid expansion. By 2020, the property sector was exhibiting bubble characteristics — housing prices had risen far above income levels in major cities.
The government intervention
In 2020-2021, the Chinese government introduced the "three red lines" policy — limits on developer leverage ratios — to cool the sector. Developers that had relied on rolling over debt found their access to new financing curtailed. Evergrande, with over $300bn in liabilities, defaulted in late 2021. Country Garden, another of China's largest developers, followed in 2023.
The household impact
The vast majority of Chinese urban household wealth is held in property. As developers failed to complete pre-sold apartments and property prices fell in many cities, household confidence collapsed. This consumer pessimism became a significant drag on domestic consumption — a dynamic that Chinese policymakers have found difficult to reverse.
The global significance
China's property slowdown has reduced its demand for steel, copper, cement and other commodities, affecting exporters from Australia to Brazil. It has reduced Chinese economic growth, which has knock-on effects for global trade. And it has demonstrated that China's model of credit-fuelled, investment-led growth has limits.