For two decades, building apartments powered China’s economy and Australia’s iron ore boom. Then the property market collapsed. Here’s what happened, and why it still matters here.
For about 20 years, property was the engine of China’s economy. Developers built millions of apartments, local governments raised money by selling land, and households poured their savings into property, which most saw as the safest investment.
At its peak, property and the industries connected to it, such as construction, steel and cement, were estimated to make up around a quarter of China’s economic output.
How the crisis started
Many developers borrowed heavily to expand, often selling apartments before they were built and using the money to fund new projects.
Worried about the risks of soaring debt and rising prices, the Chinese Government introduced new rules in 2020, known as the “three red lines”, limiting how much developers could borrow.
Developers that relied on constant borrowing quickly ran into trouble.
Evergrande and Country Garden
China Evergrande, once the country’s best-selling developer, defaulted on its debts in 2021, with liabilities of more than US$300 billion. A Hong Kong court ordered it to be liquidated in 2024.
Country Garden, which had been China’s largest developer by sales, defaulted in 2023. Many other developers followed.
Thousands of unfinished apartment projects were left stalled, and some buyers who had paid for homes that weren’t built refused to keep paying their mortgages.
The impact
Home sales and prices fell, and new construction collapsed. Because so much household wealth is tied up in property, falling prices made many Chinese families feel poorer and reluctant to spend.
Local governments, which relied on land sales for revenue, came under financial pressure.
The slump has dragged on China’s economic growth and contributed to weak prices, with China facing periods of deflation. Beijing has rolled out a series of support measures, including cutting interest rates, easing purchase restrictions and funding the completion of unfinished homes, but recovery has been slow.
Why it matters to Australia
China’s construction industry is the biggest user of steel, and steel is made from iron ore, Australia’s most valuable export.
A weaker Chinese property market means less demand for steel, which tends to push down iron ore prices. That affects the profits of miners such as BHP, Rio Tinto and Fortescue, Western Australia’s economy, and federal and state budgets, which rely on mining taxes and royalties.
China’s leaders have been trying to shift the economy towards manufacturing, technology and consumer spending, which could mean property never returns to its former role.
