China’s economy met its official growth target in 2025, but a prolonged real estate downturn continues to heavily impact households, local governments and consumer confidence, highlighting the structural weaknesses beneath the headline numbers.
China’s National Bureau of Statistics reported this week that the economy increased 5% the previous year, matching the government’s goal for a second consecutive year. The figure was largely supported by strong exports, which generated a breaking surplus of $1.19 trillion in 2025. Growth in the fourth quarter translated to an annualized pace of roughly 4.9%.
The country’s housing market was once a cornerstone of economic expansion and now remains in deep distress. New home sales have decreased to their lowest level in over 15 years, while prices for current apartments continue to decline nationwide. Home values have gone down about 20% since 2021 with more estimates showing steeper drops in some cities.
Housing slump smacks consumers
The crumble in home values has eroded household wealth and dampened spending. Retail sales growth sharply slowed late last year, barely rising year over year in November and slightly dipping in December. Economists point to falling property prices as a big reason for why consumers are pulling back.
Real estate and similar industries accounted for almost one-quarter of China’s economy in 2021. As the sector shrunk, its ripple effects scattered through construction, manufacturing, and local government finances. Investment in fixed assets declined 3.8% in 2025 as the first annual drop since 1989.
Local governments under pressure
Local governments that heavily depend on land sales and property-related taxes are struggling with shrinking revenues. Attempts to purchase unsold apartments from cash-strapped developers to convert them into affordable housing have been made yet limited fiscal capacity has constrained those efforts.
Housing transactions have slowed momentum dramatically and research firms report listings sitting on the market for an average of around two years. Buyers push for discounts while sellers resist locking in losses. Buyers in some locations demand price cuts of higher than 50% from market peaks that are effectively freezing activity.
Exports conceal underlying weakness
Strong exports helped offset weak domestic demand, allowing China to post stable headline growth despite sluggish consumption. However, foreign economists estimate the actual economic growth may be closer to 2.5 to 3%, arguing that official data overstate momentum.
Beijing has taken steps to gather confidence in limiting public discussion of falling home prices and suspending the release of some private housing price indexes. Economists remain cautious despite predicted stabilization from domestic analysts.
Analysts warn the property sector’s drag on China’s economy is unlikely to ease quickly even as exports continue to carry the broader growth picture.
