There is no doubt that China’s real estate bubble required a radical solution. Beijing spent nearly a decade attempting to deflate a property market that had long been a hub for speculation and one of the pillars of the Chinese economy, at times accounting for roughly a quarter of the country’s GDP—the second-largest economy in the world. Yet, despite these efforts, the structural distortions that fueled the bubble remain, while the reform process continues to cast a heavy shadow over economic growth.
For years, the real estate sector drained Chinese citizens’ savings—not only to build new cities but also to drive urban expansion in general. Additionally, it provided a crucial revenue source for local governments, which relied heavily on land sales.
Easy access to bank loans, an implicit belief in permanent government support, and a lack of alternative investment opportunities encouraged both households and developers to repeatedly engage in speculative waves, reinforcing the notion that prices would rise endlessly. The obsession ran so deep that when President Xi Jinping stated in 2016 that homes were meant for living, not speculation, few paid attention.
However, the market collapse did not truly begin until 2020, when authorities implemented the “three red lines” policy, imposing strict limits on developers’ ability to expand through debt. These debts were evaluated based on companies’ assets, equity, and liquidity.
By that time, the challenges had peaked, with construction space under development exceeding annual sales by more than five times, creating a massive oversupply of projects that could take years to sell—or, in some cases, might never sell at all.
