China ends credit restrictions that sparked property crisis

Friday 30 January 2026 - 12:20

By: Dakir Madiha

China ends credit restrictions that sparked property crisis

China has officially scrapped its "three red lines" policy for real estate developers, lifting the strict credit limits that ignited a debt crisis still rippling through the world's second-largest economy. According to a report from China Real Estate Business, a publication under the Ministry of Housing and Urban-Rural Development, developers no longer need to submit monthly data under this framework, effectively ending the measure introduced in 2020.

The policy had set caps on key debt ratios debt-to-cash, debt-to-assets, and debt-to-equity for firms seeking new loans, aiming to curb excessive borrowing. Instead, it triggered a liquidity crunch from mid-2021, leading to widespread defaults among developers. Shares in the sector surged on the news: China Aoyuan jumped over 34 percent, Logan Group rose more than 20 percent, Sunac China Holdings gained 29 percent, and Country Garden Holdings climbed 16 percent. The CSI 300 Real Estate Index advanced 5 percent to a two-month high, while the Hang Seng Mainland Properties Index increased 4 percent, though broader markets held steady.

Analysts view the move as more symbolic than transformative. Some developers had already stopped reporting under the rules by 2023 as authorities eased the financial leverage metrics. Liu Shui, an analyst at China Index Holdings, noted that the policy no longer serves its original purpose, with firms shifting from debt-fueled expansion to quality-focused growth. The most aggressive players have already defaulted. Still, he cautioned that funding challenges persist amid a deep market adjustment and banks' risk aversion, making short-term improvements unlikely.

In a related step, banks can now extend loans up to five years for projects on the government's "white list," a mechanism launched in January 2024 that has greenlit over 7 trillion yuan ($1 trillion) in financing to ensure residential completions. The property slump's toll remains stark: China Evergrande, once the nation's largest developer, faces liquidation; Country Garden recently restructured its offshore debt; and China Vanke secured creditor approval to defer payments, averting a potential default. A Communist Party outlet recently described the sector as an economic pillar undergoing profound adjustment, urging robust policy actions to steady expectations.