Reality won’t let itself be ignored forever.
Local governments in the People’s Republic of China that “became absolute monopolists in the land market” have sought to prevent real-estate prices from falling in hopes of averting a chain reaction.
Contrary to how things go in a free market, “the Chinese government can [or could] intervene to control supply, enforce price regulations, and freeze markets to maintain high property prices” (“China’s Real Estate Enters Death Spiral: Economic Miracle Comes to a Permanent End,” Vision Times, September 1, 2025).
Failing
But according to Xu Chenggang, one of the two economists interviewed by Vision Times, “this strategy is now failing.” (The central planning was always failing, perhaps now more visibly.)
The current market shows a “high prices but no buyers” scenario: although prices are artificially supported, transaction volumes have plummeted, and many developers face bankruptcy risks. Local governments resist letting prices fall, as this would trigger a chain reaction: reduced land revenue and fiscal crises. The situation is compounded by China’s debt-to-GDP ratio exceeding 300 percent, much of which stems from post-2008 stimulus policies. These policies used local government financing platforms to borrow from banks, with land as collateral, creating massive mortgage exposure. A drop in housing prices could shrink bank asset values, potentially causing a financial crisis.
The “although,” implying an unexpected effect, is mysterious: “although prices are artificially supported, transaction volumes have plummeted….”
There is no surprise here, no paradox. The effects of price controls are familiar to economists. Government-imposed lower-than-market prices create shortages of a good; supply is rendered inadequate to meet demand. Government-imposed higher-than-market prices create gluts or surpluses; supply exceeds demand. Market prices reflect the valuations and bidding of buyers and sellers in a way that tends to continually clear the market. Price controls impede operation of the information and incentives that make this market-clearing possible.
Despite the attempt to prop up real-estate prices in China, these prices have nonetheless started to fall, apparently because local governments are unable to impose the price floors with perfect strictness in perpetuity regardless of prevailing conditions. Bubbles pop.
Death spiral
The other economist cited, Cheng Xiaonong, “issued an even stronger warning….”
China’s real estate sector has entered a “death spiral,” with housing prices, employment, and fiscal revenues collapsing simultaneously, potentially [potentially?] triggering a systemic economic crisis. He bluntly states that China’s economy is not undergoing a cyclical adjustment but has entered a deep structural crisis akin to the Great Depression, marking the permanent end of the “China miracle.”…
Attempts to expand employment or welfare are ineffective: both state-owned and private enterprises are laying off staff, while local governments have no fiscal capacity. Economic decline appears irreversible and could trigger global financial shocks, though the world may adapt gradually, China will pay a heavy domestic price.
Not every aspect of the economists’ assessment is equally plausible. But the verdict of growing fiscal crisis, to be attended by an array of ills including even greater unemployment, seems unimpeachable barring a highly unlikely drastic and consistent instituting of a free market.
Also see:
StoptheCCP.org: “China’s Economic Woes”
StoptheCCP.org: “China’s ‘Planned Capitalism’ Kills Wealth”
StoptheCCP.org: “China’s Bold Stimulus Package Backs Losers, Reinforces Failure, Extends Losses”
