The latest research from the International Monetary Fund (IMF) indicates that China’s economy is transitioning from traditional growth models like real estate to high-tech and green industries. However, the current economic size and job creation capacity of new industries are still insufficient to fill the demand gap left by the contraction in the real estate sector.
Analysis suggests that there is a significant time lag between China’s industrial upgrade and the recovery of residents’ income, employment, and consumption. While new manufacturing industries are growing rapidly, their current size is still not enough to completely replace the fiscal contributions of traditional industries.
The continuous adjustments in the Chinese real estate market over the years are leaving a challenging gap in the economy that is difficult to fill quickly. According to a research report published by a chief economist at CITIC Securities in IMF’s September issue this year, the Chinese economy is transitioning from traditional investment patterns to high-tech and green industries.
Data from the report shows that the real estate industry accounts for about 6% of China’s GDP, while the highly anticipated automotive manufacturing sector contributes only about 1.6%, highlighting a significant difference in their actual economic impact.
Meanwhile, China’s real estate sales volume decreased from around 18 trillion yuan in 2021 to about 8 trillion yuan in 2025. Although the total output value of China’s automotive industry exceeded 11 trillion yuan in 2025 and surpassed real estate sales volume, their actual contributions to the economy cannot be simply compared based on sales figures.
The report explains that the automotive manufacturing industry involves a significant amount of intermediate products, raw materials, and component procurement, so its output value does not equate to the final value-added; whereas the real estate sector can generate higher value-added through processes like land development.
Chinese expert Li Tingqian mentioned to Epoch Times that the impact of the real estate contraction extends beyond the real estate industry itself. He explains that the ongoing adjustment in the real estate sector creates a demand gap that cannot be immediately filled by rapidly growing new industries.
He further states that the real estate sector not only involves investments and developments but also impacts various areas like construction, steel, building materials, home furnishings, and local government finances, leading to broader effects on employment, income, and consumption.
While new industries are growing at a faster pace, there are notable differences in industry scale and employment structure compared to traditional industries like real estate. This indicates that there is no simple “one grows, one shrinks” relationship between the new and old industries.
The decline in demand in the Chinese real estate sector has begun to affect certain traditional manufacturing industries. According to data released by the China Iron and Steel Association on September 20, from 2020 to 2025, China’s apparent consumption of crude steel has seen a continuous decline for five years, with a cumulative reduction of 20.9%.
During the same period, crude steel production decreased from 1.065 billion tons to 961 million tons, marking a 9.8% drop. Key steel enterprises reported a year-on-year 40% decline in primary industry profit in the first half of 2026, with a sales profit margin of only 0.77%. Among the 22 A-share listed steel companies, 14 recorded losses in the first half of the year.
Li Tingqian believes that the changes in the steel industry are deeply connected to the long-term real estate adjustments. He explains that traditional industries like steel are struggling due to the substantial gap, primarily caused by the real estate sector.
Simultaneously, China continues to invest in emerging industries such as artificial intelligence, low-orbit economy, aerospace, among others. These industries are mostly technology and capital-intensive sectors. Li Tingqian emphasizes that high-tech industries are mainly technology and capital-intensive, providing little employment assistance to the general public.
Moreover, if the expansion of emerging industries coincides with the continued contraction of traditional industries, there could be a development trend resembling a “K-shape,” where some new industries rapidly expand while some traditional industries continue to shrink.
“This situation is not merely a short-term fluctuation but rather a structural, long-term issue,” he states.
In July 2026, the Chinese National Bureau of Statistics announced that the “Three New” economic value-added accounted for 18.39% of the country’s GDP in 2025. The “Three New” economy refers to economic activities represented by new industries, new business formats, and new commercial models.
Li Tingqian believes that this does not necessarily mean that they absorbed 18.39% of employment, as many new industries like new energy, semiconductors, robotics, and AI have high capital intensity and labor productivity.
Ultimately, changes in industry structure will affect residents’ consumption through employment and income. According to the data from the fifth national economic census by the end of 2023, approximately 104.8 million people were employed in the manufacturing industry, accounting for 24.4% of employment in the second and third industrial units; around 51.17 million were in the construction industry, representing 11.9%; and about 53.26 million were in the wholesale and retail industry, accounting for 12.4%.
These three major industries collectively account for approximately 48.7% of employment in the second and third industrial units. Additionally, a significant number of self-employed individuals are found in industries such as wholesale and retail, accommodation and food service, and manufacturing. Li Tingqian indicates that this highlights the extensive employment function of the manufacturing industry, which also “accounts for the majority of tax revenues and employment in society.”
Data from the Chinese Taxation Administration shows that in 2025, the manufacturing industry’s tax revenue accounted for about 31% of all tax revenues, registering a 5.4% increase year-on-year and contributing 48% of the total revenue growth. The Taxation Administration mentioned during the summary of the tax situation for the “Fourteenth Five-Year Plan” period that the manufacturing industry’s tax revenue has remained around 30% in recent years, serving as a critical support for tax revenues.
The Chinese Ministry of Finance highlighted in the 2026 budget report that the growth of tax revenue in traditional industries is slowing down, while the overall scale of tax revenue in emerging industries remains relatively small, affecting the growth of fiscal revenues.
Li Tingqian suggests that the tax foundation of traditional manufacturing industries is weakening, as the rapid growth of new manufacturing industries is not yet substantial enough to fully replace the fiscal contributions of traditional industries. This is why the Ministry of Finance emphasizes the slowdown in the growth of tax revenue from traditional industries and the relatively small scale of tax revenue from emerging ones.
The IMF report underscores that for China’s economy to further transform, there is a need to increase residents’ income, enhance social security, and expand consumption in the service sector to reduce precautionary savings by residents towards future uncertainties such as retirement, medical care, and education expenses.
The report also stresses the necessity to address local government and real estate-related debt issues and improve credit and demand conditions through asset-liability sheet repairs.
Regarding household consumption, data reveals that Chinese household consumption represents approximately 40% of GDP, significantly lower than the average of about 53% in middle-income countries. Insufficient consumption implies that when domestic demand cannot fully absorb production capacity, companies are more likely to rely on investments and foreign markets.
Li Tingqian mentions, “If domestic consumption growth lags behind production capacity expansion in the long term, companies will continue to rely on overseas markets, inevitably increasing external risks like international trade frictions and tariff barriers.”
Therefore, he points out that China’s current economic challenge is not simply about the replacement of old with new industries but rather a simultaneous adjustment concerning industrial upgrades, employment, income, consumption, and fiscal matters.
In conclusion, Li Tingqian believes that industrial upgrades can be relatively quickly completed in the short term, but the restoration of residents’ income, job security, and consumption capacity will require a longer period of institutional accumulation. This asynchronous development is the core issue that China’s current economic structural adjustment must face in the long term.