|

China: Prolonged stagnation path – Commerzbank

Commerzbank’s Dr. Henry Hao argues China’s housing downturn, now in its fifth year, is settling into an L-shaped stagnation with a pronounced K-shaped regional divergence. The report highlights persistent weakness in developer funding, construction starts and demand, despite localized stabilization in Tier-1 cities. Structural headwinds from demographics and policy constraints suggest China’s real estate sector will remain a drag on growth for years.

L-shaped stagnation with K-shaped split

"The question we aim to answer in this insight is whether the downturn is finally approaching an inflection point. Recent data from the first half of the year indicates a localized stabilization in top-tier cities. While some analysts point to this as a sign of a housing recovery, we take a different view and see China’s real estate sector as locked into a prolonged period of stagnation."

"Inventory pressure is the clearest sign of regional divergence. Top-tier cities are gradually working through excess supply, with average absorption periods in Tier-1 and Tier-2 cities falling to 21 months and 27 months, respectively, as of May 2026. By contrast, lower-tier cities remain burdened by tens of millions of unsold units, with an average absorption period of about 84 months, or roughly seven years."

"In 2026 H1, total funds available to real estate developers contracted by 18% yoy (Chart 5). The primary source of funds for developers traditionally came from pre-sales and mortgages. With buyers retreating, this revenue stream has dried up."

"This brings us to housing starts. New construction starts have dropped to a mere 24% of their July 2021 level. This is the most forward-looking indicator of developer sentiment."

"In conclusion, we maintain our view that China's real estate sector is locked into an L-shaped trajectory. The market is settling into a permanent, downsized baseline. This L-shaped recovery is accompanied by a severe K-shaped divergence."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

Author

FXStreet Insights Team

The FXStreet Insights Team is a group of journalists that handpicks selected market observations published by renowned experts. The content includes notes by commercial as well as additional insights by internal and external analysts.

More from FXStreet Insights Team
Share:

Editor's Picks

GBP/USD stays slightly offered below 1.3600

Following an initial drop to fresh six-day lows, GBP/USD now picks up some updside traction and trades in levels just shy of the 1.3600 barrier on Thursday. The generalised cautious tone among market participants continue to underpin the Greenback ahead of Friday’s data releases and the Fed Warsh’s speech.

EUR/USD struggles for direction around 1.1650

EUR/USD gyrates around the 1.1650 region amid the absence of clear direction and following an earlier drop to the 1.630 area. The pair’s vacillating mood comes in response to the equally irresolute price action in the US Dollar as investors warm up for the release of the NFP Annual Revision and the speech by the Fed’s Warsh at the Jackson Hole Symposium, both events due on Friday.

Gold edges lower below $4,600, all eyes on Jackson Hole Symposium
Gold price (XAU/USD) attracts some sellers to around $4,580 during the Asian trading hours on Friday. The precious metal retreats from a three-month high as in-line US inflation data has reinforced the possibility of further Federal Reserve (Fed) rate hikes. Traders await Fed Chair Kevin Warsh's speech at the Jackson Hole Economic Symposium on Friday for fresh impetus.
ENA jumps over 20% as Ethena pushes to end investor unlock overhang

The Ethena Foundation has announced a series of measures to address two long-standing concerns about its ecosystem, including selling pressure from early investors and uncertainty over how the protocol's economic value is distributed.

Why this could be the most important Jackson Hole in years

Jackson Hole 2026 arrives at an unusually difficult moment for monetary policy. Investors are looking for guidance across several policy and market pressure points.

Kevin Warsh’s Jackson Hole dilemma: Say too much, too little, or just enough

Kevin Warsh is preparing to deliver his first Jackson Hole speech as Federal Reserve (Fed) Chair on Friday, and expectations extend well beyond whether interest rates will be raised or left unchanged in September.