Brookings. The real estate crises in 1990s Japan and contemporary China
This article, presented at the Brookings Papers on Economic Activity (Spring 2026), analyzes China’s ongoing real estate adjustment and compares it with Japan’s real estate collapse in the late 1980s. Kenneth Rogoff and Yuanchen Yang examine why China’s real estate downturn has generated significant contractionary effects on its broader economy. At the same time, they identify structural parallels with Japan’s “Lost Decade,” despite important institutional differences. The analysis focuses on macroeconomic fundamentals, policy triggers, and real-economy transmission channels.
The role of real estate in China’s economy
Real estate has long been a central pillar of China’s economic development. In recent years, its importance has increased further, particularly amid rising global tensions over China’s export capacity. China remains the world’s largest trading nation by volume; however, domestic demand is heavily tied to property and infrastructure. Real estate and its related sectors—including construction materials, utilities, and furniture—along with infrastructure account for nearly one-third of economic demand. Moreover, Chinese households allocate close to 70% of their wealth to housing, a significantly higher share than in other economies. As a result, fluctuations in the housing market have broad macroeconomic implications.
Parallels between China and Japan
The authors highlight notable similarities between China’s current situation and Japan’s experience following its real estate collapse. Although the two countries differ institutionally, both exhibit comparable structural conditions. In particular, demographic trends play a critical role, as China’s population is aging even faster than Japan’s did during its downturn. In addition, both economies experienced substantial over-development in the housing sector. These parallels suggest that China’s adjustment process could follow a prolonged trajectory. If the pattern mirrors Japan’s experience, China may still be in the early to middle stages of a long-term correction rather than nearing its conclusion.
Structural drivers of the downturn
Financial disruptions are often cited as primary causes of real estate crises. In China’s case, many observers point to the 2020 “three red lines” policy, which imposed borrowing constraints on property developers, as well as the 2021 collapse of China Evergrande Group. However, the authors argue that these events acted as triggers rather than root causes. The slowdown in real estate activity had already begun by 2018, indicating underlying structural pressures. Demographic changes and persistent oversupply played a more fundamental role in shaping the downturn. Therefore, the crisis reflects deeper imbalances rather than purely financial shocks.
Real-economy transmission channels
To explain the persistence of the downturn, the authors emphasize real-economy mechanisms rather than purely financial factors. Overbuilt cities face an investment overhang that is likely to suppress new construction for an extended period. At the same time, declining housing prices have reduced consumption and weakened both household and business confidence. In addition, the absence of comprehensive social safety nets in China amplifies these effects. Housing functions as a form of precautionary savings; consequently, falling property values lead households to cut spending and increase savings. These dynamics reinforce the contractionary impact of the real estate downturn across the broader economy.
Reference
Rogoff, K., & Yang, Y. (2026, March 25). A tale of two countries: The real estate crises in 1990s Japan and contemporary China. Brookings Papers on Economic Activity. https://www.brookings.edu/articles/a-tale-of-two-countries/