China developers ceased reporting ‘three red lines’ for years
The move signals how dramatically the authorities have changed their position on the real estate sector
[BEIJING] Chinese developers stopped filing regular reports on their so-called “three red lines” as early as 2023, according to people familiar with the matter, after officials dialled back the stringent leverage metrics that exacerbated the nation’s unprecedented real estate meltdown.
At least three developers ceased submitting the figures to regulators around 2023, while some others suspended reporting from early last year, the people said, asking not to be identified because the matter is private.
Property stocks rallied on Thursday (Jan 29) after Beijing News reported the development. The move signals how dramatically Chinese authorities have changed their position on the real estate sector, once a major growth driver and now a long-term burden for the economy.
“It’s not meaningful to keep implementing the ‘three red lines’ policy,” said Liu Shui, an analyst at China Index Holdings. “The policy has already reached its target as many aggressive developers have come into default.”
The three red lines were introduced in 2020 as a key part of Beijing’s attempt to clamp down on a housing boom that fuelled mountains of debt and stoked fears about the economic fallout of a potential crash.
But the measures quickly became seen as a key turning point for the market, worsening a credit crunch that ultimately triggered around US$130 billion of defaults. Among the companies to collapse was China Evergrande Group, once the country’s biggest developer which became a symbol of the massive overinvestment in the sector.
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A Bloomberg Intelligence gauge of Chinese developer stocks jumped as much as 10.9 per cent on Thursday, the biggest intraday gain since July. The measure is down 83 per cent from its January 2018 peak.
The pivot away from the three red lines won’t lead to improvements in developer fundraising, according to Liu. Financial institutions will stay away from providing funds as long as the housing market continues on its downward spiral, he said. BLOOMBERG
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