Beijing imposed three «red lines» to help contain rising debt levels in China’s property sector in China but a recent review found breaches at the vast majority of developers.
Amongst China’s top 30 property firms by sales ranked by «China Real Estate Info», have breached at least one of the three «red lines».
Certain firms, such as China Evergrande Group and China Railway Construction Corporation, breached two «red lines».
Three «Red Lines»
The three «red lines» were introduced by China in August 2020 after a meeting to discuss rising debt levels in the property market.
The red lines include a cap on liabilities that doe not exceed 70 percent of assets; a net debt level that does not exceed equity; and cash levels at least equivalent to short-term borrowings.
If no red lines are breached, the firm is allowed 15 percent annual debt growth. Thereafter, the cap decreases by five percentage points for each red line crossed.
