Xi's Property Rescue Cost $1.4 Trillion. The Developers Are Defaulting Anyway.

China has spent $1.4 trillion in direct and indirect support to stabilize its property sector since January 2024, according to data compiled by the Asian Development Bank and Goldman Sachs. Developers are defaulting anyway. New home sales fell 28 percent in the first quarter of 2026 compared to the same period last year, and 47 major cities recorded their lowest transaction volumes since records began in 2005.

For Zhang Wei, a 39-year-old accountant in Wuhan, the numbers mean nothing. She paid a deposit on an apartment in 2022 that was supposed to be completed in 2024. The developer, Sunac China Holdings, defaulted in November 2023. The building is a concrete shell. Zhang still makes monthly mortgage payments on a home that does not exist. "The government says they will help," she said outside the unfinished tower in Wuhan's Hongshan District. "They have been saying that for two years."

The crisis has entered a new phase. What began in 2021 as a liquidity crunch at overleveraged developers has become a crisis of confidence that no amount of state intervention has been able to reverse. Despite Beijing's efforts—interest rate cuts, down payment reductions, direct purchases of unsold inventory by state-owned enterprises—Chinese households are not buying homes. They are saving instead. The household savings rate reached 38.4 percent in 2025, the highest since 1995, according to the People's Bank of China.

The Stimulus That Changed Nothing

Beijing's rescue package, announced in stages between January 2024 and March 2026, included 500 billion yuan in direct liquidity support to developers, 300 billion yuan in local government bond issuances earmarked for housing completion funds, and another 600 billion yuan in央行 (People's Bank of China) lending facilities to state-owned asset management companies tasked with buying unsold apartments. The Ministry of Housing and Urban-Rural Development instructed 50 cities to remove all home purchase restrictions in February 2025. Mortgage rates were cut three times, bringing the average five-year loan rate to 3.8 percent, the lowest on record.

Sales did not recover. In March 2026, the China Index Academy, a property research firm, recorded transactions of 18.7 million square meters of residential space across 100 cities—down from 26.1 million in March 2025 and 41.3 million in March 2019. Developers including Country Garden, Evergrande, and Shimao Group have defaulted on a combined $340 billion in offshore bonds since 2021, according to S&P Global Ratings. Evergrande, once China's largest developer by sales, was ordered into liquidation by a Hong Kong court in January 2024. Its founder, Xu Jiayin, was detained in September 2023 on suspicion of illegal fundraising and remains in custody.

The defaults are cascading into local government finances. Chinese municipalities derive 35 to 50 percent of their revenue from land sales to developers, a system known as "land finance." As developers stop buying land, cities cannot pay for infrastructure, schools, or public sector wages. In Henan province, teachers in Luoyang and Zhengzhou went unpaid for three months in late 2025. In Guizhou, one of China's poorest provinces, local government debt reached 156 percent of GDP by the end of 2025, according to the International Monetary Fund.

A Generation That Will Not Buy

The problem is not just financial. It is demographic and psychological. China's working-age population peaked in 2015 and has been shrinking since. The birth rate fell to 6.39 births per 1,000 people in 2025, the lowest since the founding of the People's Republic in 1949, according to the National Bureau of Statistics. Fewer young families means fewer home buyers. But even those who can afford homes are choosing not to buy them.

A survey of 8,200 urban residents aged 25 to 40, conducted by Peking University's Guanghua School of Management in February 2026, found that 71 percent believed property prices would continue to fall. Only 14 percent said they planned to buy a home in the next three years. The rest cited job insecurity, falling incomes, and a belief that the government would not complete unfinished projects. "My cousin bought an apartment in 2021," said Li Jian, a 32-year-old software engineer in Shenzhen. "The developer went bankrupt. He still pays the mortgage. Why would I do the same?"

The distrust extends to the state itself. When the Ministry of Housing announced in March 2025 that state-owned enterprises would buy unsold apartments and convert them into affordable rental housing, the plan was met with skepticism. By January 2026, SOEs had purchased only 1.2 million units—less than 20 percent of the 6.8 million unsold apartments recorded by the China Index Academy. In many cities, the purchased units remain empty. Local governments lack the budgets to maintain them as social housing, and private renters avoid them because they are in oversupplied, low-demand neighborhoods.

The Unfinished Towers

Across China, an estimated 20 million apartments remain unfinished, according to data compiled by Rhodium Group, a research firm based in New York. These are not units awaiting interior finishing. They are buildings where construction stopped—some with walls, some without windows, some abandoned mid-floor. Buyers prepaid for these homes under China's presale system, which allows developers to sell apartments years before they are built. When developers ran out of cash, construction halted. Buyers were left with mortgages on properties they cannot occupy.

In July 2022, homebuyers in 326 projects across 91 cities organized a mortgage boycott, refusing to pay loans on unfinished apartments. The protests, documented by the research firm China Dissent Monitor, were the largest coordinated act of financial disobedience in the People's Republic's history. The government responded with a combination of coercion and concessions. Local police detained organizers in Zhengzhou, Changsha, and Xi'an. The People's Bank of China simultaneously created a 200 billion yuan "housing completion fund" to finish stalled projects.

Two years later, most of those projects remain unfinished. The completion fund was distributed to provincial governments, which prioritized projects in politically sensitive cities. Rural and third-tier cities were largely ignored. In Jiangxi province, 74 of 92 stalled projects have received no funding, according to a report by the provincial housing bureau leaked to the financial news site Caixin in February 2026. Buyers continue to pay mortgages. Banks, under orders from regulators, have been told not to foreclose, to avoid triggering social instability.

Local Governments Go Broke

The collapse of land sales has pushed dozens of Chinese cities toward insolvency. Revenue from land auctions fell 45 percent in 2025 compared to 2021, according to the Ministry of Finance. In the first quarter of 2026, land sales in 100 major cities totaled 487 billion yuan, down from 1.2 trillion yuan in the same period in 2021, a 59 percent decline. Cities that borrowed heavily during the infrastructure boom of the 2010s now cannot service their debts.

Tianjin, a municipality of 14 million people adjacent to Beijing, reported debt of 1.04 trillion yuan in 2025, equivalent to 68 percent of its GDP, according to a filing with the Ministry of Finance. Interest payments alone consumed 22 percent of the city's budget. In Inner Mongolia, the regional government missed bond payments in January 2026, the first such default by a provincial-level entity. The central government intervened with an emergency loan. But the precedent has been set.

The IMF estimated in March 2026 that total local government debt, including off-balance-sheet liabilities held by financing vehicles, reached 92 trillion yuan, or $12.7 trillion, equivalent to 66 percent of China's GDP. Beijing has resisted a national bailout, fearing it would encourage moral hazard and undermine Xi Jinping's campaign against local government profligacy. Instead, the central government has allowed selective defaults and forced mergers of distressed financing vehicles.

Xi's Dilemma

The property crisis poses a direct challenge to Xi Jinping's political authority. Xi has staked his legitimacy on delivering sustained economic growth and national rejuvenation. The property sector, at its peak in 2020, accounted for 29 percent of China's GDP when including construction, materials, and related services, according to Kenneth Rogoff and Yuanchen Yang, economists at Harvard University. Its collapse has dragged growth down with it. China's GDP grew 4.2 percent in 2025, the slowest since 1990, excluding the pandemic year of 2020.

Xi has responded with contradictory signals. In a speech to the Politburo in December 2025, he called for "high-quality development" and warned against "excessive stimulus." Yet in the same month, the Ministry of Finance authorized 2.8 trillion yuan in new local government bonds for 2026, the largest issuance on record. The People's Bank of China cut reserve requirement ratios twice in early 2026, injecting 1 trillion yuan in liquidity. Analysts describe the approach as muddled—neither the full-scale stimulus of 2008 nor the structural reform Xi's rhetoric implies.

Economists outside China have urged Beijing to shift from investment-led growth to consumption-led growth, to transfer wealth from state-owned enterprises and local governments to households, and to write down unpayable debts. None of these recommendations have been adopted. "Beijing is trying to reflate a bubble without appearing to reflate a bubble," said Michael Pettis, a professor of finance at Peking University's Guanghua School of Management. "It cannot do both. The result is policy paralysis disguised as gradualism."

Contagion Beyond Borders

China's property crisis is no longer a domestic problem. Commodity exporters have felt the impact first. Iron ore prices fell 34 percent in 2025 as Chinese steel demand collapsed. Australia, which sends 70 percent of its iron ore exports to China, entered a technical recession in the fourth quarter of 2025. Copper prices dropped 22 percent. Chile, the world's largest copper producer, reported a $4.8 billion fiscal deficit in 2025, forcing cuts to education and healthcare spending.

The Belt and Road Initiative, Xi's signature foreign policy project, has also stalled. Chinese overseas construction contracts fell to $110 billion in 2025, down from $160 billion in 2020, according to the American Enterprise Institute's China Global Investment Tracker. Cash-strapped state-owned developers and contractors, which executed many BRI projects, have pulled back. Pakistan's $62 billion China-Pakistan Economic Corridor has seen investment drop 58 percent since 2022. In Kenya, the Nairobi–Mombasa railway extension has been suspended indefinitely.

What Comes Next

The central question is whether China can transition from a property-driven growth model to something sustainable without triggering a financial crisis or social unrest. The optimistic scenario holds that Beijing will gradually absorb the losses, restructure local government debt, and reorient the economy toward advanced manufacturing and consumption. The pessimistic scenario is that debt deflation becomes entrenched, growth stagnates for a decade or more, and Xi's political coalition fractures under the weight of broken promises.

For now, Beijing is buying time. The state has enough fiscal capacity to prevent a Lehman-style collapse. But it cannot force households to buy homes they do not trust or restore confidence in a system that has left millions holding mortgages on uninhabitable concrete shells. Every month, more projects are abandoned. Every quarter, land sales fall further. And every year, fewer Chinese believe the party line that property is a safe investment.

In Wuhan, Zhang Wei checks the construction site every week. The tower has not changed in 18 months. "I asked the bank if I could stop paying," she said. "They told me no. So I keep paying. For a home that will never exist."