China's Economic Crossroads: Property Crisis, Demographics, and the Path Forward

China faces converging economic challenges that are reshaping the world's second-largest economy. The property market crisis that began in 2021 continues to weigh on growth, while demographic headwinds and trade tensions with Western nations add complexity to Beijing's economic management.

The Property Market Challenge

China's property sector, which historically accounted for roughly 30% of GDP when including related industries, remains in a prolonged downturn. Major developers including Evergrande and Country Garden have defaulted on debts, and housing prices continue to decline in many cities.

Government intervention has expanded, with state-owned enterprises acquiring distressed projects and local governments purchasing unsold inventory. However, the sector's contribution to growth has permanently diminished as China attempts to transition toward a consumption and technology-driven economy.

Demographic Headwinds

China's population declined for the second consecutive year in 2024, accelerating concerns about long-term growth potential. The working-age population is shrinking while the elderly population expands rapidly. Despite policy changes allowing three children per family, birth rates remain well below replacement level.

Youth unemployment remains elevated, creating social tensions even as the overall labor market tightens. The government has prioritized vocational training and manufacturing employment to address the mismatch between graduate expectations and available positions.

Manufacturing Strength and Trade Tensions

Despite challenges, China's manufacturing sector continues to dominate global supply chains, particularly in EVs, batteries, and renewable energy equipment. BYD overtook Tesla as the world's largest EV manufacturer, and Chinese solar panel producers maintain over 80% of global capacity.

Trade tensions with the U.S. have accelerated supply chain diversification, with Chinese companies establishing manufacturing in Southeast Asia, Mexico, and Eastern Europe to maintain market access.