I went to Shanghai for a trade show last month. However, what I saw there altered the way I think of the “China economy collapse,” which everyone’s going on about.
My hotel was half empty. The usually packed restaurants had more staff than customers. Even the fashionable shopping district on Nanjing Road was eerily silent for a Thursday afternoon. Something was definitely off.
The Numbers Don’t Lie—And They’re Pretty Scary
Back home, I began diving into what is actually going on over there. And would you believe my gut feeling was right on the money?
Consumer prices in China, as measured by its consumer price index, declined 0.1 percent from a year earlier in May 2025, meaning people have less to spend on everything from groceries to gadgets. Here’s the deal: When prices fall like this, that’s what’s called deflation, and it is bad for any economy.
China is undergoing deflation, with the price level falling for a second consecutive year in 2024, and it’s on track for the longest period of economy-wide price declines since the 1960s.
Think about it this way: if you knew your TV was going to cost $100 less next month, would you buy it today? Probably not. That’s exactly what’s happening to millions of Chinese consumers right now.
The Real Estate Disaster That Started It All
Here’s where things get seriously messy. The housing market has been their golden goose for decades. Ordinary families invested their life savings in apartments on the assumption that prices could only rise.
Well, that party’s over.
If housing prices continue to fall, the fortune of millions of Chinese families, who are largely tied to real estate, may be wiped out, which will further drag down consumption and overall economic growth.
I spoke to my buddy Mike, who works for a construction firm that used to do a lot of business in China. “Three years ago, we couldn’t keep up; demand was so high,” he said. “Now? Our Chinese contracts are completely dry.”
Here’s where things get really messy. China’s housing market has been their golden goose. The ripple effects are nuts. When people’s homes lose value, they stop buying cars, clothes, and pretty much everything else. It’s a vicious cycle that feeds on itself.
Trump’s Trade War Just Made Everything Worse
You remember when Trump whacked those insane tariffs on Chinese stuff? President Donald Trump this year raised tariffs on Chinese goods to 145%, the highest level in a hundred years.
That’s not a typo; 145 percent!
And so Chinese companies can’t sell their stuff to America the way they used to. What are they doing instead? Trying to sell everything domestically. But here’s the catch: Chinese people aren’t buying enough to make up for lost American sales.
Goldman foresees China’s real gross domestic product expanding a mere 4.0% this year, despite Chinese authorities targeting growth of roughly 5% by 2025.
Missing your growth targets by a full percentage point? That’s like a baseball player batting
.250 when they promised .350. Not good.
The Deflation Death Spiral Is Real
China’s deflation is creating a vicious cycle, resulting in higher unemployment and reduced consumer willingness to spend as people anticipate lower future prices.
This is Economics 101 stuff, but it’s playing out in real time over there. People expect prices to fall, so they don’t buy stuff. Companies make less money, so they fire workers. Unemployed people definitely don’t buy stuff. Rinse and repeat.
I’ve seen this movie before during the 2008 financial crisis here in the States. It’s not pretty.
Why the China Economy Collapse Matters to You and Me
“So what?” you might be thinking. “That’s China’s problem, not ours.”
Wrong. Dead wrong.
China is the world’s second-biggest economy. In our ever-connected global economy, China’s slowdown would not occur in isolation.
Think about your iPhone, your sneakers, and your kid’s toys. A huge chunk of that stuff comes from China. If their economy tanks, those supply chains get messed up. Prices go up for us, or products become harder to find.
My neighbor works at a parts supplier for Ford. He’s already worried about potential layoffs if Chinese demand for American cars keeps dropping.
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But Wait—Is It Really a “Collapse”?
Here’s where I’ll throw you a curveball. Despite all this doom and gloom, some smart people think we’re being a bit dramatic with the whole “collapse” thing.
China is also the top global manufacturer, leading exports of many goods, investing heavily in high-tech sectors, and innovating rapidly. It’s critical to avoid conflating an economically slowing China with an industrially and technologically weaker China.
Exports have been booming for a while and that trend has continued this year. There have even been some signs that parts of the real estate sector are doing better, although from a very depressed level.
So yeah, China’s hurting. But they’re not exactly turning into Venezuela overnight.
The Government’s Hail Mary Plays
Beijing knows they’re in trouble. One of the top priorities for China’s economy in 2025 is to arrest this decline and stabilize the real estate market. The second priority is to vigorously promote the recovery of consumption.
They’re throwing everything but the kitchen sink at this problem. Lower interest rates, government spending programs, you name it. Whether it’ll work? That’s the million-dollar question.
What This Means Going Forward
Listen, I’m no academic economist with some fancy-pants Ph.D. I am just a normal man who pays attention to what is going on around the world. But here’s my take:
The Chinese economy’s collapse is one that isn’t occurring in free-fall, like a building toppling over. It’s instead more like the air that steadily escapes from a balloon.
Even if the Chinese economy is going through some serious stress internally, given all the pressure on it externally, it’s not necessarily teetering on the edge of a precipice.
Could things get worse? Absolutely. Could they turn it around? Maybe, if they make some tough decisions and catch a few breaks.
What I do know is this: anyone who tells you they know exactly what’s going to happen is probably selling you something. The only sure thing is that China’s economic problems are going to affect all of us in ways we probably haven’t even thought of yet.
Keep an eye on this story. It’s far from over.