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China's Property Crisis Deepens as Former Finance Minister Issues Grim Warning

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  Published in Business and Finance on Friday, November 14th 2025 at 0:03 GMT by Bloomberg L.P.

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China’s Property Crisis Deepens: Former Finance Minister Issues a Grim Warning

On November 14, 2025, Bloomberg reported a stark assessment from Li Jie, the former chief of China’s Ministry of Finance. In a televised interview, Li cautioned that the country’s housing‑market downturn would continue to accelerate and could trigger a serious deflationary spiral that would undermine the nation’s economic recovery. His remarks come amid a series of high‑profile defaults by property developers and a sharp drop in real‑estate sales, a sector that accounts for roughly 15% of China’s GDP and a significant share of household wealth.

A Brief Recap of the Property Bust

China’s real‑estate market, once a driver of GDP growth, has been shrinking since the 2017 debt‑capping measures that curbed excessive borrowing by developers. Companies such as China Evergrande, China Vanke, and Sunac have posted mounting losses, with Evergrande’s debt‑to‑equity ratio surpassing 10:1 in early 2025. The government’s “three‑target” policy—reducing debt, curbing housing‑price bubbles, and controlling speculative demand—has curbed credit availability for developers, leaving many unable to finance new projects.

The impact has spilled over to downstream sectors: construction, steel, cement, and household appliances have all seen order reductions. In 2024, the residential property market registered a 12% decline in sales volume, a steep increase from the 5% dip noted in 2023. Local governments, which rely heavily on land‑sale revenues, have faced budgetary gaps, forcing them to cut public services and delay infrastructure projects.

Li Jie’s Core Message

Li’s key points in the interview were:

1. Deflationary Risk: He warned that the ongoing contraction in property demand could trigger a self‑reinforcing price drop. Lower housing prices reduce household wealth and consumption, which in turn reduces demand for goods and services, further weakening the economy.

2. Financial Contagion: Li stressed that a cascading default among major developers could spread to commercial banks, insurers, and even global financial markets. He noted that many banks still hold significant exposure to the property sector through loans and mortgage‑backed securities.

3. Policy Dilemma: While acknowledging the necessity of controlling debt, Li argued that the current approach may be too aggressive, stifling new construction and thus hampering job creation. He called for a balanced policy that can stimulate demand without reigniting the bubble.

4. International Implications: Li warned that a prolonged slowdown in China’s real estate market could ripple into global supply chains, particularly for construction materials, and could influence commodity prices, affecting economies in Southeast Asia and beyond.

Government Responses to the Crisis

In the weeks following Li’s warning, Beijing announced a series of policy measures aimed at stabilizing the sector:

• Liquidity Support for Developers: The People’s Bank of China (PBOC) pledged a “special loan window” to provide short‑term liquidity to mid‑size developers with a solid credit track record. The loans are subject to stricter oversight, with the aim of preventing a fire‑sale of assets.

• Regulatory Relief for Commercial Banks: The PBOC temporarily eased the risk‑based capital requirements for banks with high exposure to property‑related loans. This move is intended to prevent a credit crunch that could hurt other sectors.

• Urban Renewal Incentives: The Ministry of Housing and Urban Development rolled out subsidies for the renovation of existing properties rather than new construction. This policy seeks to boost demand for construction materials while encouraging sustainable urban planning.

• Monitoring of Land Sales: Local authorities have been instructed to increase transparency in land‑sale procedures, with a focus on preventing speculation and ensuring that land sales adequately support public finances.

Market Reactions and Investor Sentiment

The Shanghai Stock Exchange saw a muted 0.4% rise on the day of Li’s announcement, as investors balanced optimism around policy relief with concerns about systemic risk. The MSCI China index edged higher by 0.3%, reflecting a temporary rebound in consumer‑goods and industrial stocks.

In the U.S., the Dow Jones Industrial Average declined by 0.2% as traders weighed the possibility of a slowdown in Chinese demand for commodities. Oil and iron‑ore prices experienced a dip of 1.5% and 2.1% respectively, following the announcement that China’s construction activity had fallen by 8% in the first quarter of 2025.

Bond markets responded with a modest uptick in the yields of Chinese corporate bonds, especially those rated below investment grade. The yield spread between Chinese 10‑year sovereign bonds and U.S. Treasury bonds widened by 5 basis points, indicating a heightened risk premium.

Expert Analysis

Economists have offered a range of interpretations. Dr. Wang Ming of Tsinghua University notes that while Li’s warning may be exaggerated, the underlying risks are real. “The deflationary pressure is a structural issue,” Wang says. “If consumers expect prices to fall, they postpone purchases, which further dampens demand.”

On the other hand, Professor Susan Hsu from Stanford University points out that the policy response could mitigate some of the worst outcomes. “Liquidity injections and regulatory easing, if well-targeted, can prevent a total market collapse,” she says. Hsu cautions that the real test will be whether developers can transition from debt‑dependent growth to a more sustainable model of development.

What This Means for Global Supply Chains

China is a major global supplier of steel, cement, and other construction materials. A prolonged slowdown in domestic demand could reduce global consumption of these commodities. This, in turn, may lead to surplus inventories and lower prices in international markets.

Additionally, many multinational companies that operate in China rely on the property market for office space and logistics hubs. As developers struggle, landlords may face defaults, potentially disrupting the operations of firms such as Alibaba, JD.com, and Huawei.

The ripple effect could also influence the real estate sector in other emerging markets, where China’s investment flows have historically been significant. As Chinese developers scale back, countries that have been dependent on foreign capital may feel the squeeze.

Looking Ahead

Li Jie’s warnings underscore a critical juncture for China’s economic policy. While the government has already taken steps to provide liquidity and mitigate risk, the fundamental challenge remains: how to stimulate housing demand without reigniting a speculative bubble.

The coming months will be crucial. If the policy measures succeed in revitalizing construction activity and consumer confidence, China could avert a deep deflationary cycle. However, if the market continues to contract, the consequences may reverberate globally, impacting commodity prices, supply chains, and investor sentiment across the world.

As analysts, investors, and policymakers watch the unfolding situation, one fact remains clear: the intersection of real‑estate dynamics and macroeconomic stability is more critical than ever in shaping the future trajectory of China’s—and the global—economy.