Across the vast Chinese landscape, concrete jungles of half-finished apartment buildings and eerily quiet ghost cities stretch for miles, a persistent reminder of the housing boom taken too far. For years, real estate symbolized China’s success in driving economic growth, jobs, and local government revenue, but behind the glamor was a fragile system built on speculation and easy debt. This system began decades earlier. After Deng Xiaoping’s market-oriented reforms in the 1990s introduced private property ownership, opened China to foreign investment, and expanded foreign trade, major cities rapidly industrialized. Thousands of new factories emerged, drawing millions of people from the countryside, where many survived on just 155 yuan—22 U.S. dollars— per year, toward urban centers promising higher wages and better living conditions [1]. This triggered one of the largest human migrations in history, with about 150 million people moving into urban areas at the beginning of the 1990s, a number that grew to 286 million by 2020 [2]. An enormous demand for housing was created, one that developers were eager to supply. What followed was not only an unprecedented construction boom but also the creation of a deeply flawed system. 

Today, developers are going bankrupt, projects sit unfinished, and homebuyers are losing faith as the world’s second-largest economy faces one of its biggest challenges yet. China’s property crisis reveals how decades of debt-fueled construction and speculation, once celebrated as proof of economic strength, have become dangerous liabilities that now threaten the nation’s economy and social stability. After more than five years of falling property prices with no end in sight, public confidence continues to erode, pushing the economy closer to deflation. This article will examine how developers built a system designed to maximize profits, and how the consequences of their greed now threaten the entire Chinese economy. 

The Rise of Property Developers 

Many of the property development firms that later became giants of the industry emerged at the same time as the mass rural to urban migration of the 1990s. Some of the biggest developers in Chinese real estate, including Country Garden, Evergrande, and Poly Group, were founded in the decade that followed [3]. Developers had easy access to loans provided by state-owned banks, as it was in the state’s interest to fuel the growth of the property market. The sector not only drove overall economic growth but also provided a major funding source for local government revenue through land sales. 

At the height of this building boom, between 12 and 24 new cities were being built each year [4]. The extremely rapid pace of development generated enormous profits, turning Chinese real estate firms into some of the largest and wealthiest in the world. Ordinary citizens also benefited from the booming economy, and rising incomes allowed more people to buy property. During a time when the economy was still unpredictable, and a widespread belief held was that the market was “too big to fail” because prices had only ever gone up, property quickly became the safest form of investment [5,6]. 

Yet, beneath the surface, developers were drowning in debt, and the state was artificially propping up demand. Estimates suggest that the government has spent over $2 trillion to keep the property market afloat [7]. Despite dropping demand, especially during COVID, state-owned firms actually purchased 21 percent more land plots from local governments in 2022 than they did in 2019 [8]. As the property sector neared collapse, fears of broader economic fallout grew, prompting the government to intervene. 

Ponzi-Scheme Market Design 

The property market that emerged from Deng Xiaoping’s liberal economic reforms eventually evolved into one designed to grow the economy as fast as possible rather than to provide a quality product to homebuyers. This growth-driven model depended on a constant flow of new customers entering the market at the same rapid pace. Developers felt secure taking on massive amounts of debt because they assumed demand would never run out and that there would always be new buyers to sustain their projects and pay off old loans. 

A key part of this model was the widespread reliance on pre-sales under which developers sold housing units before the units were even built. Buyers often paid large deposits or even the full price up front. However, most of the money never even went toward building the homes that customers had paid for. Instead, funds were redirected and repurposed to pay off existing debts, finish older projects, or purchase new land from local governments for future projects [9]. The system was like a continuous cycle of borrowing and selling, where as long as new buyers kept entering the market, the flow of money kept the machine running. But when demand began to dry up, the entire structure started to crumble. 

Collapse of the Property Market

As urban migration slowed, housing demand declined, forcing developers to take on increasing amounts of debt to repay existing loans and complete old projects. With less “new money” coming in, many projects quickly ran out of funding and construction stalled indefinitely, a pattern that became widespread across the country. Rows of half-finished apartment blocks that were missing windows, doors, and even entire floors now sit eerily silent. 

At the same time, years of overbuilding fueled by speculative investments and the belief that property values would always rise have created vast concrete jungles of empty apartment buildings that stretch for miles. These units are fully completed and often owned, yet they remain empty because many people see them only as places to park their wealth rather than live in. Estimates say that there are enough empty units in China to house up to 90 million people [10]. Yet despite this massive surplus, homelessness is a persistent problem and reveals how disconnected supply and demand really are. The empty units exist not because there is no need for them, but because they were never built with actual residents in mind. 

Public Outrage

Over the years, property developers accrued so much debt that they eventually could no longer pay it off and began defaulting on their loans. Bloomberg reports that 34 of China’s 50 largest property developers have defaulted, and 53 companies have already collapsed [11]. With funds drying up and construction halting, millions of homebuyers are left paying mortgages for homes they may never receive. In Tianjin, just south of Beijing, buyers have been waiting since 2016 for apartments that were supposed to be completed in 2018 [12]. Many had already paid large deposits, or even the full price for the unit, but were later asked to pay more money so developers could resume construction. Of course, there was no guarantee that even if they paid more money, they would finally be delivered a completed unit, fueling even more outrage amongst buyers in Tianjin. After years of broken promises, buyers have started boycotting their mortgage payments. An estimated two percent of mortgages are now in default, putting a strain on banks and lowering confidence in the financial system, as well as serving as a warning sign to the government of growing public anger [13]. In addition, protests have erupted outside developers’ offices, including Evergrande’s headquarters, as homebuyers demand answers and their money back [14]. 

Government Efforts 

A policy that the Chinese government introduced to stabilize the crumbling property market was the Three Red Lines Policy, which puts limits on how much debt developers can carry if they want to continue borrowing money from banks [15]. It sets three key criteria: total debt can’t exceed 70 percent of assets, total debt can’t be higher than the value of its own equity, and developers must have more cash on hand than short-term debt [16]. When the policy was first rolled out, only 6.3 percent of developers met these standards, revealing just how fragile the sector’s financial health really was [17]. Many firms were drowning in their own debt, and yet the market allowed them to continue to take out massive loans. Under the Three Red Lines policy, those that didn’t meet the criteria were cut off from new borrowing, even if they had ongoing, incomplete projects. At first, smaller firms were hit hardest, with many collapsing under this new regime, but soon after, many major developers, like Evergrande, followed. Within a year of the policy being implemented, Evergrande, once hailed as a symbol of China’s real estate boom, was unable to repay any of its loans and officially declared default. Interestingly, the Chinese government chose not to intervene, likely viewing the crisis as a necessary correction.

Still, Beijing stepped in selectively to soften the blow. The government urged banks to give out new loans to developers so they can finally complete long-delayed projects and deliver homes to buyers [18]. However, many commercial banks are still hesitant to lend to property developers because they fear even more defaults and view the sector as a risky investment. Completing these projects not only allows developers to finally wash their hands of angry customers but also helps the government restore public confidence by making it look like they took effective action. 

Broader Effects on the Economy 

Due to the long-held perception that property is a safe investment, roughly 70 percent of the average Chinese household’s total assets are tied up in property [19]. By comparison, only about 46 percent of an American household’s wealth is invested in real estate [20]. While property may have once been a safe and reliable investment, falling prices have made families feel poorer, leading them to cut back on spending, particularly on big-ticket items. This drop in consumption has caused huge ripples across the economy and weakened demand in many other sectors. To revive sales, companies have lowered their prices, but the declines have been so steep that China is now on the brink of deflation [21]. Producer prices fell 2.3 percent as manufacturers cut prices amid weak demand, while consumer prices dropped 0.3 percent, extending a months-long trend of households pulling back on spending [22]. As profits shrink, companies are resorting to layoffs and other cost-cutting measures, further worsening the economic slowdown.  

In addition, foreign investors are rapidly losing confidence and pulling their investments out at record speeds. According to the Chinese Ministry of Commerce, foreign direct investment fell by 12.7 percent between January and August 2025 [23]. 

What was once China’s main engine of economic growth has become a drag on the broader economy. If Beijing fails to stabilize the property market, it risks falling further into an economic crisis and threatens its ambitions for global influence.