The “three red lines” Policy and Debt Crisis of Real Estate Companies in China

Haoyu Ye ()
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Haoyu Ye: New Channel School

A chapter in Proceedings of the 2024 2nd International Conference on Economic Management, Financial Innovation and Public Service (EMFIPS 2024), 2025, pp 151-162 from Springer

Abstract: Abstract Since 2020, the biggest risk in China’s financial system has come from the real estate industry. This article explores how the “three red lines” policy on real estate financing affects the debt repayment capacity and debt risks of real estate companies, leading to systemic shocks in the economic system. First, through literature review, it summarizes the high-turnover business model of real estate companies, which is the background of the “three red lines” policy. Secondly, through data from banks and enterprises’ balance sheet, it finds that the “three red lines” policy has indeed tightened financing for real estate companies, increasing the non-performing loan rate and the amount of defaults in the real estate sector. The debt risk in real estate transmits to the real economy through financial intermediaries, while also negatively affecting consumption and investment by enterprises and residents through the wealth effect. The analysis indicates that too rapid a tightening of financing restrictions may impact normal business operations and lead to a debt crisis.

Keywords: “the three red lines”; debt crisis; systematic risk (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:spr:advbcp:978-94-6463-706-9_15

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DOI: 10.2991/978-94-6463-706-9_15

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