China Misses Fiscal Spending Target Due to Housing Market Slump

China’s fiscal policy in 2024 failed to provide sufficient stimulus for economic growth, as reported by Bloomberg. According to the Ministry of Finance, total government spending reached ¥38.6 trillion ($5.3 trillion)—5% below the planned target. The real estate downturn has led to local government funding shortfalls and challenges in meeting financial obligations.

Fiscal Deficit Worsens as Housing Slump Continues

Actual expenditures by central and local governments across key budget categories—including infrastructure projects and civil servant salaries—were less than 1% higher than in 2023. Additional tax revenues last year totaled ¥28.2 trillion, resulting in a deficit of ¥10.4 trillion—equivalent to 7.7% of China’s GDP.

The continued decline in new housing construction has significantly reduced revenue from land sales, which local governments rely on to finance their budgets. This shortfall has made it increasingly difficult for regional administrations to fulfill financial commitments, particularly in paying salaries and funding planned expenditures.

At the same time, Chinese developers remain burdened with mounting debt, exacerbating financial instability in the sector.

Major Developers Struggle Amid Debt Crisis

Shares of Sunac China Holdings Ltd. fell 30% after the company filed another liquidation request. Meanwhile, China Vanke Co., one of the country’s largest developers, faces a $4.9 billion debt repayment, with uncertainty looming over its ability to secure refinancing and avoid default.

In January 2025, a Hong Kong court ordered the liquidation of a key offshore subsidiary of China Evergrande Group, signaling further distress in the real estate sector.

Despite government efforts to stabilize the housing market, including lower mortgage costs and eased home-buying restrictions, the impact has been limited. In 2024, sales of the top 100 developers dropped by 28.1%, a sharper decline than the 16.5% contraction in 2023.

Analysts at JPMorgan Chase predict that Chinese developers will be the biggest source of defaults in Asia in 2025.

Early Signs of Market Stabilization in 2025?

However, in early 2025, some signs of recovery have emerged. In February, major real estate and land transactions were reported, with a record-setting land sale in Zhengzhou marking an 87.5% price premium after 255 rounds of bidding.

In Beijing, Shanghai, and Shenzhen, land prices have risen, and the number of transactions has increased.

According to China Real Estate Information Corp., in 35 major cities, agreements covering 234,600 square meters of real estate were signed in early 2025. In tier-one cities, transaction volume surged 134% year-over-year.

In January, the total value of transactions across 300 cities rose 8%, with the average price per square meter increasing by 33%. Experts attribute this rebound to government support policies and renewed investor confidence.

China Introduces New Policies to Revive Investment

China’s National Development and Reform Commission has unveiled a new action plan aimed at:
✔ Lowering barriers for investors
✔ Strengthening property rights protections
✔ Unifying market access regulations

Additionally, authorities plan to revise administrative penalties and eliminate residency restrictions, which currently prevent migrant workers from accessing social benefits in the cities where they are employed.

Stabilizing the real estate market remains a top priority in 2025. Leading construction firms are working to restructure debts and adapt to new economic conditions, while the government seeks a delicate balance between controlling developer debt and maintaining market stability.

While China’s property debt crisis remains a serious risk, recent land sales and rising prices suggest that the market may be starting to recover. However, the pace of recovery will depend on the effectiveness of government interventions and developers’ ability to manage their financial obligations.

Additionally, geopolitical factors, including policy decisions by the new U.S. president, could play a major role in shaping China’s economic trajectory.