A challenge for China has arguably been unsustainable property sector growth and the ensuing hangover of unsold units and bad debt. A new paper from a European bank notes that the sector isn't as important, relatively, as it used to be. The question is how resilient exports can be in an increasingly restrictive world.

For investors fretting that oversupply in Chinese real estate and related malinvestment is a threat to the Asian giant, a report noting that property now accounts for far less of the economic pie than before the pandemic will offer reassurance.

In a paper from Edmond de Rothschild, Fang Liu, Asian economist at the European private banking firm, said that real estate has powered China for much of the past two decades, but growth in the economy has remained “remarkably resilient” even as property markets have gone into a “prolonged structural downturn.”

Fang Liu said that in an early 2024 paper, the firm bank had already seen that the “new economy” of technology and modern manufacturing had become a new growth engine for the country. Further, real estate has, in terms of a contribution to broader GDP, fallen from around 30 per cent in 2019 to around 18 per cent.

China’s exports, which have contributed to 30 per cent of the Chinese growth, keep hitting new highs despite global headwinds, the economist's report, which seeks to measure the effect of Western tariff/non-tariff barriers, said. “They have shifted from low-cost goods to higher-value, technologically sophisticated products, making them more complex and harder to replace.”

Gross domestic product was forecast to have grown 4.5 per cent year-on-year in April to June, cooling from 5.0 per cent in the first quarter, a Reuters poll of 54 economists showed on 13 July. For 2026, China’s GDP growth is forecast to cool to 4.6 per cent from 5.0 per cent in 2025, before ‌easing further to 4.4 per cent in 2027.

Policymakers in Beijing are keen for the country to reduce reliance on real estate – a sector riven with debt concerns and worries about unsold homes today – to pivot towards a new development model. 

There is more data showing that the EdR observations in 2024 about the shift from real estate as a major driver of GDP, Fang Lui said.

“The evidence accumulated over the past two years has strengthened rather than weakened this conclusion. Production of electric vehicles, industrial robots, batteries and semiconductors continues to expand rapidly. High-tech manufacturing industrial value added with an average 15 per cent growth rate has consistently outperformed the rest of the economy,” the economist said. “Rather than representing a temporary policy-driven recovery, these developments point to a deeper shift in the sources of China’s long-term growth.”

Divergences
At HSBC Private Bank and Premier Wealth, Patrick Ho, chief investment officer for North Asia, sees a “K-shaped bifurcation of the Chinese economy.” The observation also plays into the diverging performance of China’s economic sectors.

“The upper arm of the K – AI compute, semiconductors, and advanced equipment and hardware – is expanding rapidly, fuelled by policy support, export-driven demand and domestic substitution. The lower arm – consumption, property, and discretionary spending – remains structurally impaired. According to economic activity data in May, the two arms have diverged even further,” Ho wrote.

Since the start of 2026, the performance gap between China’s A-shares (+8.4 per cent) and the MSCI China Index (-15.5 per cent) or Hang Seng Index (-10.0 per cent) is striking and the gap is even wider in tech. Year-to-date, the ChiNext Index – a Nasdaq-style board on the Shenzhen Stock Exchange – recorded 36.5 per cent return versus the Hang Seng Tech’s -20.1 per cent slide. 

Real estate woes
A desire to reduce real estate’s importance as a growth engine is understandable. The picture presented by Atlantic Council, in a 28 January note from Jeremy Mark, was bleak: “China’s real estate slump is in its fifth year, with no end in sight. Key indicators – sales, prices, construction starts and completions – continue to slide, while an estimated 80 million unsold or vacant homes clog the market. 

“Many of the country’s largest private developers have defaulted on debts, and one of the largest state-backed firms, China Vanke Co, has been struggling for months to stave off a similar fate. One Chinese economist estimates that as many as 80 per cent of developers and construction firms could 'exit the market’ in the coming years as the industry permanently contracts,” Mark wrote.

The Atlantic Council paper noted that real estate has been the primary repository of life savings for hundreds of millions of Chinese households. Citing Australia’s Macquarie Group, it said about 85 per cent of the price gains that underpinned that wealth creation have evaporated since 2021, when the government tightened credit restrictions rein in a property bubble. Several major China developers have defaulted, such as China Evergrande Group and China South City Holdings Ltd.

In its paper, Edmond de Rothschild said an important element of the China exports story is the higher value-add nature of this side of the economy. 

“While net exports have decreased as a share of GDP (from 8 per cent in 2008 to 4 per cent today), their contribution to growth has increased significantly (from around 0 per cent pre-Covid to over 30 per cent today) in recent years,” Fang Lui added. 

The bank concluded by arguing that although protectionist policies against China are a challenge, they will not decisively damage its export sector.

“More importantly, China’s exports are no longer competing on the same basis as two decades ago. Industrial upgrading has increased domestic value added, technological sophistication and the complexity of manufactured exports, making Chinese products increasingly difficult to substitute,” it said. “The sustainability of China’s export engine will ultimately depend not on the pace of global protectionism, but on whether China’s industrial upgrading continues to outpace it. Our analysis suggests that it will.”