BEIJING — China's economy expanded 4.8 percent in the first nine months of 2024, keeping the government's annual growth target of "around 5 percent" within reach, but the seemingly stable headline figure masks deepening structural problems centered on a property crisis that shows no signs of abating. Third quarter GDP growth slowed to 4.6 percent year-on-year, down from 4.7 percent in the second quarter, as property investment plunged 13.9 percent through September and fixed asset investment recorded its first contraction since the pandemic, developments economists characterize as "rare and alarming."

The divergence between surface-level GDP figures and underlying economic health has become stark. While industrial output rose 5.8 percent in September and retail sales grew 3.2 percent, driven by temporary stimulus measures and consumer trade-in programs, property investment extended its decline and home prices fell at the fastest pace since May 2015. Real estate, which at its peak accounted for a quarter of China's economy and holds 70 percent of household wealth, continues its steep descent into what experts increasingly describe as a prolonged downturn with limited prospects for near-term recovery.

The property sector's troubles ripple through the entire economy, suppressing consumer confidence, straining local government finances dependent on land sales, and creating deflationary pressures that have persisted for months. Core inflation dropped to just 0.1 percent in September, the lowest rise since February 2021, while the producer price index contracted 2.8 percent in the third quarter. These dynamics suggest China faces not just a cyclical slowdown but a structural transition that will reshape its economic model for years to come.

Property Investment Collapse Accelerates

Property investment's 13.9 percent decline through September represents an acceleration from the 12.9 percent drop recorded through August, defying expectations that supportive policies would stabilize the sector. The last time China recorded a contraction in overall fixed asset investment was 2020 during the pandemic, according to data dating back to 1992. This unprecedented peacetime decline underscores the severity of the real estate crisis and its drag on broader economic activity.

Housing starts have fallen more than 60 percent relative to pre-pandemic levels, a historically rapid pace seen only in the largest housing busts in cross-country experience over the last three decades, according to International Monetary Fund analysis. New home construction has contracted sharply as developers prioritize completing existing projects over starting new ones, responding to both financial constraints and weak demand. Sales have fallen amid homebuyer concerns that developers lack sufficient financing to complete projects and that prices will continue declining.

Bruce Pang, adjunct associate professor at CUHK Business School, warns that weakness in real estate investment may persist for a longer period than previously anticipated. "This could represent a structural restructuring, and it's possible that investment will never return to its prior levels," he said. The sentiment reflects growing recognition among economists that China's property boom, which fueled decades of rapid growth, has ended permanently rather than entering a temporary correction.

Major developers continue facing existential threats. China Vanke, a government-linked developer, reported a record 49.5 billion yuan ($6.8 billion) annual loss for 2024, demonstrating how deep the problems run even for companies with implicit state backing. China Evergrande Group, once the country's largest developer, delisted from the Hong Kong stock exchange in August after a court-ordered liquidation, marking a grim milestone for the sector. The company's more than $300 billion in debts and collapse of a restructuring plan exemplified systemic vulnerabilities throughout the industry.

Consumer Confidence Remains Deeply Depressed

With 70 percent of Chinese household wealth held in real estate, declining property values have created a powerful negative wealth effect that suppresses consumption. Consumers have kept their wallets shut tight as home prices erode their perceived net worth and purchasing power. This frail consumption has taken a toll on businesses across sectors, with major companies from eyewear makers to retailers citing weak Chinese consumer demand as dragging down performance.

Retail sales growth, while accelerating to 3.2 percent in September from 2.1 percent in August, reflects temporary boosts from government trade-in subsidies and e-commerce promotional events rather than fundamental improvement in consumer sentiment. The persistence of near-zero inflation despite these programs indicates demand remains structurally weak. Consumer price inflation rose just 0.4 percent in September and averaged only 0.3 percent over the first nine months of 2024, well below Beijing's 3 percent target.

The proportion of Chinese adults aged 25 to 34 who own homes fell from over 70 percent in 2010 to 50 percent in 2020, with major cities seeing nearly 30 percent of young adults renting rather than purchasing. This generational shift reflects not just affordability challenges but also changing attitudes toward property investment. In cities like Beijing and Shenzhen, price-to-income ratios have reached staggering heights, with Shenzhen's average home costing 43 times the median annual income compared to ratios around 15-20 in metropolises like London or New York.

Young buyers increasingly view property as a risky gamble rather than a safe investment, a perception reinforced by the collapse of major developers and unfinished construction projects. More than 70 percent of first-time homebuyers receive financial assistance from parents, highlighting how property purchase has become unattainable for most individuals relying solely on their own income. This erosion of homeownership among younger generations threatens to fundamentally alter consumption patterns and economic growth dynamics in coming decades.

Deflation Becomes Entrenched

Deflationary pressures have intensified across the economy, creating a self-reinforcing cycle of weak demand, falling prices, and delayed spending. The producer price index reversed improvements seen in the second quarter, dropping 2.8 percent in the third quarter for the sharpest quarterly contraction since early 2023. Ex-factory prices remained in contraction for the 16th consecutive month, hitting 48.2 in September.

Core inflation excluding volatile food and energy prices fell to just 0.1 percent in September, the lowest since February 2021. Price rises for services slipped to 0.2 percent in September, the lowest level since March 2021. These indicators suggest deflationary forces have spread from manufacturing to services, encompassing a broader swath of economic activity than earlier in the year.

Deflation creates pernicious economic dynamics. As prices fall, consumers delay purchases expecting even lower prices in the future, further depressing demand. Businesses face margin pressure and curtail investment and hiring. The real burden of debt increases, creating particular strain for highly leveraged property developers and local governments. Breaking this deflationary cycle requires either dramatic policy stimulus or painful economic adjustment, neither of which China has fully embraced.

Economists note that persistent deflation in a major economy like China carries global implications. Chinese export prices have fallen, contributing to disinflationary pressures worldwide. This dynamic has benefited consumers in importing countries but created challenges for competing manufacturers and complicated monetary policy decisions for central banks navigating their own inflation targets.

Policy Response Remains Cautious

Beijing has responded to economic weakness with a combination of monetary easing and targeted fiscal support, but the scale has fallen short of what many economists believe necessary for meaningful impact. The People's Bank of China maintained benchmark lending rates unchanged for a sixth consecutive month in October, with the one-year loan prime rate at 3 percent and the five-year rate at 3.5 percent. This cautious approach reflects concerns about currency depreciation and capital outflows if easing becomes too aggressive.

The central bank's efforts at monetary easing over the first half of 2024 proved insufficient to boost the economy, putting the PBOC under fresh pressure to do more. However, authorities remain reluctant to deliver a "bazooka" stimulus package that would dramatically lift household confidence and reverse property market declines. Instead, policy support has focused on managing risks and facilitating sector transition rather than pursuing aggressive growth measures.

In May 2024, the PBOC announced a 300 billion yuan ($41.5 billion) facility to support affordable housing, allowing local state-owned enterprises to buy unsold homes. Authorities launched a "whitelist" mechanism channeling funds from state banks into property projects identified by city governments as justifiable for financing support. As of August, China had approved 2.23 trillion yuan in loans to whitelisted developers, though this has done little to revive broader market sentiment.

The limited stimulus scale reflects competing priorities within the leadership. While economic growth matters, authorities also want to transition away from real estate-led expansion toward high-technology manufacturing and consumption-driven growth. This structural transformation requires accepting slower growth in the near term, a trade-off the government appears willing to make despite social stability concerns.

Structural Headwinds Mount

Beyond cyclical weakness, China faces mounting structural challenges that will constrain growth potential in coming years. Demographic decline has accelerated, with the population falling for a third consecutive year. The working-age population is shrinking while the elderly population grows rapidly, creating fiscal pressures from pension and healthcare obligations while reducing labor force expansion.

Urbanization, which powered property demand and economic growth for decades, is slowing as the share of the population living in cities approaches saturation levels in many regions. The need for additional new housing will diminish as population declines and fewer residents live in older housing requiring replacement. Large public subsidies that previously helped millions move to newer housing face constraints as depressed land sale revenues have tightened local government fiscal positions.

Local government debt has become a significant vulnerability. Land sales, which provided crucial revenue for infrastructure investment and public services, have collapsed along with the property market. This revenue shortfall coincides with obligations to fund "three major projects" including affordable housing construction, urban village renovation, and emergency infrastructure upgrades. The fiscal squeeze facing local governments constrains their ability to stimulate local economies or maintain public investment levels.

Geopolitical tensions add external headwinds. Export growth, which has provided a partial offset to weak domestic demand, faces threats from rising tariffs and trade restrictions. The United States and European Union have imposed barriers on Chinese electric vehicles and other products, limiting market access. Export growth slowed to 2.4 percent in September from 8.7 percent in August, driven by weakening external demand and trade tensions that are expected to intensify.

Economic Outlook and Policy Dilemmas

Economists project continued modest growth with persistent downward pressure. A Reuters poll showed China's economy likely to expand 4.8 percent in 2024, undershooting the government's "around 5 percent" target, with growth cooling further to 4.5 percent in 2025. Some independent analyses paint a bleaker picture, with estimates suggesting actual GDP growth in 2024 may be substantially below official figures when accounting for price deflation and investment overstatement.

The fourth quarter faces particular downward pressure given weak property momentum, limited policy support, and high comparison bases from 2023. Xing Zhaopeng, senior China strategist at ANZ, expects limited stimulus of between 500 billion yuan and 1 trillion yuan, forecasting second-half growth of 4.5 percent or lower. Robin Xing, chief China economist at Morgan Stanley, shares similar projections.

The government's policy dilemma centers on balancing short-term stabilization needs against long-term structural transformation goals. Nomura Chief China Economist Ting Lu argues that "China should step up its efforts in tech, but we also firmly believe the so-called old economy will remain the backbone of the economy for the foreseeable future." He notes that Beijing will have to clean up the property sector mess in coming years, as real estate remains second only to exports in contributing to GDP while accounting for about 18 percent of local government revenue.

Allowing property prices to adjust more rapidly to market-clearing levels could accelerate inventory reduction and restore buyer confidence that prices have found a floor. However, this approach risks triggering wealth destruction, financial instability, and social unrest that authorities fear. The alternative of gradual managed decline extends the adjustment period but may perpetuate uncertainty that keeps buyers on the sidelines.

Global Implications

China's property crisis and economic slowdown carry significant global ramifications. As the world's second-largest economy and a major driver of global growth in recent decades, China's deceleration reduces demand for commodities, industrial equipment, and consumer goods worldwide. Countries heavily dependent on Chinese consumption, from resource exporters like Australia and Brazil to luxury goods manufacturers in Europe, face headwinds from weakening Chinese demand.

The property sector's contraction affects global supply chains for construction materials, from steel and cement to household appliances and furnishings. Chinese imports have shown particular weakness, growing just 0.3 percent in September as domestic demand languishes. This import weakness reflects not only cyclical factors but also China's strategic push for self-sufficiency, which has structural implications for trading partners.

Financial markets remain sensitive to developments in China's property sector and economic trajectory. The crisis has already created volatility in Chinese equities and bonds while raising questions about exposure of global financial institutions to Chinese real estate debt. As China's capital markets become more integrated with global finance, contagion risks from a deeper property crisis or broader economic downturn warrant monitoring.

The World Bank has cut its growth forecast for China to 4.4 percent for 2024, down from 4.8 percent predicted in April, citing persistent difficulties including elevated debt, property weakness, and an aging population. The institution's projections reflect growing consensus among international organizations that China's property crisis represents a fundamental economic challenge rather than a temporary setback.

China stands at a critical juncture as it navigates the transition from a property-driven growth model to a more balanced economic structure. The third quarter's 4.8 percent GDP expansion, while meeting near-term targets, masks deeper fragilities that will shape the economy's trajectory for years ahead. Property investment's accelerating decline, entrenched deflation, and depressed consumer confidence signal that the easy growth of previous decades has ended.

The path forward requires difficult policy choices. More aggressive stimulus could provide near-term relief but risks perpetuating imbalances and delaying necessary adjustments. Allowing painful but necessary restructuring could position the economy for more sustainable long-term growth but carries risks of financial instability and social discontent. Finding the optimal balance will test Chinese policymakers' skills and determine whether the economy can successfully navigate this transformation.

What remains certain is that the property crisis will not resolve quickly. With home prices still elevated relative to incomes in many cities, massive unsold inventory, and fundamental demand weakening from demographic decline, the sector faces years of adjustment. How China manages this transition will profoundly impact not just its own economic future but also the trajectory of the global economy that has become deeply intertwined with Chinese growth over the past four decades.

The 4.8 percent GDP figure tells one story—of an economy still expanding and meeting official targets. But beneath that headline number lies a more complex and troubling reality of structural challenges that no amount of statistical management can fully conceal. For policymakers, businesses, and investors worldwide, understanding this deeper story is essential for navigating the economic landscape ahead.