China’s Housing Market Woes Deepen Amid Rising Youth Unemployment and US Tariffs: What Investors Must Know Now
As we close the second quarter of 2025, China’s housing market is flashing warning signs that every global investor should heed. According to the Kobeissi Letter, new home prices in 70 major cities dropped 3.2% year-over-year—the 24th consecutive monthly decline. June alone saw a 0.3% month-over-month fall, the steepest in eight months. Second-hand home prices also plunged 0.6%, the largest drop since September 2024, while residential sales tumbled 12.6% year-over-year, marking the sharpest decline this year.
This sustained downward pressure on prices is compounded by a significant contraction in real estate investment, which fell 1.2% in the first half of 2025, hitting a new low unseen since the pandemic’s onset in 2020. The property market crisis that many hoped was behind China is clearly deepening once again.
Why This Matters: The housing sector is a critical pillar of China’s economy, accounting for roughly 25% of GDP when including construction, materials, and related services. Prolonged weakness here risks a domino effect—slowing growth, rising unemployment, and dampened consumer confidence. For investors, this isn’t just a local issue; it reverberates through global supply chains, commodity markets, and multinational corporations exposed to China’s real estate and construction sectors.
Youth Unemployment and Tariff Pressures: A Dangerous Mix
Adding fuel to the fire is China’s stubbornly high youth unemployment rate, which, despite a slight dip from 15.8% in April to 14.9% in May, remains perilously elevated. Young workers form the backbone of future economic growth, and their prolonged joblessness risks social unrest and diminished consumer spending power.
Complicating matters further are escalating US tariffs targeting transshipments through ASEAN countries. Vietnam’s recent agreement to impose a 40% tariff on these transshipments threatens to undermine China’s strategies to circumvent US levies on exports bound for America. Chinese exports to ASEAN countries surged from 15% year-over-year in May to 17% in June, signaling increased reliance on these routes—and vulnerability to tariff disruptions.
Expert Insight: What’s Next for Stimulus?
Prominent economist Alicia Garcia Herrero anticipates Beijing will ramp up stimulus efforts in the second half of 2025. She notes the government has already begun easing monetary and fiscal policies but expects more targeted measures to sustain growth without resorting to a “big bang” stimulus.
However, Garcia Herrero cautions that stimulus will likely avoid direct household support. Consumption, therefore, won’t be the main growth driver this year. Instead, the focus will remain on infrastructure, exports, and business investment to stabilize the economy amid external headwinds.
This nuanced approach reflects Beijing’s balancing act: stimulating growth while managing debt levels and avoiding overheating. Investors should watch for incremental policy shifts, particularly in infrastructure spending and credit availability for key sectors.
Market Reactions and Opportunities
Despite these headwinds, China’s equity markets tell a more optimistic story. The Hang Seng Index has surged 22.64% year-to-date, led by easing US tech export restrictions that have boosted electric vehicle and technology stocks. The Hang Seng TECH Index rose 21.82%, while the Hang Seng Mainland Properties Index gained 12.14%, signaling investor confidence in a potential recovery.
Meanwhile, the CSI 300 and Shanghai Composite Index posted more modest gains of 1.84% and 4.54%, respectively. Notably, the Nasdaq Composite’s 7.35% gain and the Roundhill China Dragons ETF’s 19.18% rise reflect growing investor appetite for Chinese tech stocks, bolstered by reports that NVIDIA and AMD plan to resume chip exports to China.
Actionable Advice for Investors and Advisors
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Reassess Real Estate Exposure: Given the ongoing slump in China’s housing market, investors with significant exposure to Chinese real estate or related sectors should conduct rigorous risk assessments. Consider trimming positions or diversifying into less vulnerable sectors.
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Monitor Policy Signals Closely: With Beijing likely to implement measured stimulus, staying attuned to fiscal and monetary policy announcements is crucial. Early positioning in infrastructure and technology sectors could capture upside as stimulus unfolds.
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Watch Trade and Tariff Developments: The evolving US-ASEAN-China trade dynamics could create volatility in export-dependent industries. Investors should track tariff negotiations and supply chain adjustments to anticipate market shifts.
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Focus on Quality Tech and EV Stocks: The strong performance of tech and EV sectors amid easing export restrictions suggests these areas remain growth engines. Investors might increase allocations here, emphasizing companies with solid fundamentals and innovation pipelines.
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Prepare for Volatility: The second half of 2025 is poised for challenges—export headwinds, tightening global conditions, and domestic uncertainties. A diversified portfolio with tactical hedges against volatility is advisable.
Unique Insight: A recent report from McKinsey highlights that China’s urban millennials, despite economic pressures, continue to prioritize technology and sustainability in their consumption patterns. This trend could underpin long-term growth in green technology and digital services sectors, offering savvy investors a thematic play beyond traditional infrastructure stimulus.
In summary, China’s economic landscape in H2 2025 is a complex interplay of housing market fragility, labor market challenges, and geopolitical trade tensions. While risks abound, targeted stimulus and sectoral shifts create pockets of opportunity. Investors who adopt a nuanced, forward-looking approach—balancing caution with strategic positioning—will be best placed to navigate this evolving terrain.
Sources:
- The Kobeissi Letter, Q2 2025 Housing Market Analysis
- Alicia Garcia Herrero, Chief Economist, Natixis
- McKinsey & Company, “China’s Urban Millennials and the Future of Consumption,” 2025
- Bloomberg Market Data, June 2025
Source: China Faces Growth Test as Housing, Retail Sales, and Tariffs Weigh on Outlook