Something is broken in China’s economy in a way that reminds me of the lost decades in Japan. The central bank of China is injecting liquidity, flooding the system with money, but it’s like trying to water a dead tree. Cash isn’t flowing. People are not spending. And worst of all, they have lost faith. Why? Because millions of Chinese families bet their future on real estate and lost big. The People’s Bank of China is now trying everything. More money, lower rates, more liquidity. But the results are baffling.
Consumer inflation CPI won’t budge. Loan growth has cratered and in April 2025, banks issued just 280 billion yuan in new loans, the lowest April in two decades. Yes, even lower than 2006. So what’s stopping the money? Simple. People don’t want to borrow. They either save what they have or they use the money to pay off their mortgages early because spending, especially big steps spending feels dangerous now. And the root of the problem, you guessed it right, the real estate collapse. For decades, property was the holy grail of Chinese wealth.
It was your retirement plan, your family’s ticket to the middle class. Prices only went up until they didn’t. Between 2021 and 23, prices reached their peak and millions of families bought at the absolute top. But today, if you bought during those uh three years, there’s a more than 90% chance you’re underwater and maybe by a lot. And this is not even counting the mortgage interest, the taxes, and the transaction fees. It’s not just a uh financial loss. It’s now snowball falling into a confidence collapse.
So, how many people are we talking about? Let’s break this down. Between 2021 and 23, around 45 million new homes were sold. And you know, in big cities like Beijing, secondhand homes usually outnumber new home sales, sometimes by two to one. So that means all in nearly 100 million home units changed hands in just three years. Even adjusting for overlap and housing swap, 60 to 70 million households probably saw their biggest asset shrink fast. And it’s not just peak buyers who are hurting.
Housing prices have collapsed back to 2016 levels in most cities. In Wuhan, they have already dropped below Q1 2016. In another few months, we’re probably looking at 2015 prices. If you bought any time in the past decade, chances are you either broke even or you are sitting on losses. especially if you had a high interest mortgage. And here is the jaw joer fact. Half of all homes in China have changed hands in the last 10 years. So that means half the population either made no gains or even worse lost money on what was supposed to be the most reliable investment and the biggest investment in their lives. This is why consumption is frozen. When home prices were rising, people spend freely. buy the designer bag, go on that European vacation, take out that car loan because hey, you know, the house is going up in value anyway while we just sleeping. But now, now the house is a burden, a risk, a money pit, right? You can’t even relax. You’re losing money while sleeping. and you are stuck wondering how much further it will fall.
So you tighten your belt, you cancel plans, you hoard cash. Someone put it really perfectly recently. Back then I work like crazy and still couldn’t keep up with rising home prices. Now that I finally bought one, I work like crazy and I can’t even keep up with how fast it is falling. This is the emotional core of China’s real estate crisis. And it’s why no amount of stimulus, no interest rate tweick will fix this anytime soon. Because this isn’t just a numbers problem.
It’s a trust problem You know, a fundamental shift in psychology. And the real damage, you can’t see it in charts, but in the cautious, fearful way people now conduct their lives. The property dream was once the foundation of the Chinese dream. Now it’s starting to look like a trap and a symbol of China’s lost decade.
