China’s Investment Slump

China's economy is in trouble. November 2024 saw fixed-asset investment fall 11.1% year-over-year, the worst drop since COVID lockdowns. Through the first 11 months of the year, investment contracted 2.6%. China's headed for its first annual investment decline in over 30 years. Investment accounts for nearly half of GDP, which means this goes beyond a typical downturn; the economic model that powered China's rise is fundamentally breaking.

China's three main investment pillars are collapsing simultaneously. Through November, real estate investment plummeted 15.9%. Infrastructure spending remains flat, even with record-high government bond issuance. Manufacturing investment contracted 1.2% in Q3 2025, a reversal from 9.2% growth in 2024. Beijing used to prop up one sector when another fell. All three are now declining at once.

The property crisis is the cause. Since the late 1980s, fixed-asset investment rose every single year. Local governments got hooked on land sales and infrastructure spending, funneling cash from property developers into massive construction projects. Beijing capped borrowing for real estate developers in 2021 to limit financial risk. Property giant Evergrande went bankrupt. Local government debt has ballooned to a record $18.9 trillion, much tied up in funding infrastructure projects. Land sale revenues have collapsed since 2022, leaving many unable to pay off their debts. Nearly 50% of these vehicles are operating in the red even with subsidies included.

The government approved 1 trillion yuan in stimulus since late September, but that's nothing compared to past rescue packages. Chinese leaders think exports can save them, banking on a record trade surplus to make up for dead domestic demand. China's exports actually fell in October as trade tensions with Washington got worse.

Home prices across 70 major cities are down over 12% from their peak. Used home prices have fallen 20%. Retail sales growth is at its lowest point since COVID restrictions ended. For anyone watching China's economic trajectory over the past few decades, a question looms: do Beijing's traditional policy tools still work?

China's investment model is done. For decades, Beijing threw money at infrastructure and property, accepting waste and debt as the cost of growth. Unfortunately for them, diminishing returns on real estate investment have been dragging down growth rates for years. Beijing wants to shift toward consumption-led growth, but consumers aren't spending as property values keep falling. China's about to post its first investment decline in three decades, and the depth of the contraction remains unclear.

Read More Here:

• Keith Bradsher, The New York Times

• Chuin-Wei Yap & Stella Yifan Xie, Bloomberg

• Kenneth Rogoff, IMF

Question: What steps can China take to combat their current investment slump?