Chinese property developers are seeing a practical easing of the "three red lines" regime: several firms report they no longer need to submit monthly red-line metrics to regulators, a signal that Beijing’s strict deleveraging campaign has entered a new phase. Introduced in 2020 to curb excessive borrowing, the red lines — caps on net gearing, adjusted net gearing and cash-to-short-term-debt ratios — were designed to choke off reckless expansion and limit systemic financial risk.
The rules had a profound impact. The number of mainland developers with total sales exceeding CNY 100 billion plunged from 43 to 10 by 2025 on a full-caliber basis, and equity-backed large groups fell from 26 to just five, data from market tracker CRIC show. Between 2022 and August 2025 fourteen developers were forced into passive delisting, while thousands of firms moved through bankruptcy, restructuring and liquidation processes as the sector unwound excess leverage.
Financing volumes contracted sharply after the policy bite. Developers’ aggregate fundraising for the first three quarters of 2025 stood at CNY 307.2 billion, down about 30% year-on-year, with third-quarter financing at CNY 114.5 billion, remaining at historically low levels. At the same time, national property investment has dwindled to an 11-year low, and new project starts have flattened, indicating the industry has largely shifted from expansionary growth to preservation and operational finance.
Regulators and market participants interpret the reporting reprieve as a sign that the deleveraging goal has largely been met: aggregate leverage across the sector is trending toward healthier levels, distressed firms have been weeded out or restructured, and the market has largely completed its deep clean. For many surviving developers, borrowing needs are now more about cash management than expansion, allowing more flexible financing schedules and lower short-term adjustment costs.
Market reaction is split. A prominent private investor has argued the market may trough within a few quarters and begin a decade-long recovery driven by supply-side clearance and an expected return to a long-run equilibrium of roughly 1 billion square metres of annual transactions. By contrast, Morgan Stanley, after fieldwork in Shanghai and Hangzhou, pushed its projected cyclical bottom out to late 2027, warning that high inventories will keep price and volume pressures intact and that top-tier cities may face deeper near-term corrections.
Those divergent views reflect deep regional disparities and policy transmission lags. Local markets have moved at different speeds: some first-tier cities are still working through significant oversupply, while pockets of demand-driven stability appear in others. Policy nudges — from relaxed land-purchase rules to mortgage subsidies — and even spillovers from buoyant equity and precious-metal markets may help shore up sentiment, but they are unlikely to erase structural headwinds quickly.
The practical loosening of reporting requirements marks a tactical shift: regulators appear to be swapping a blanket brake for more targeted support, signalling tacit acceptance that the acute phase of financial risk has passed. Yet the sector’s recovery will be uneven and gradual, with policymakers walking a fine line between sustaining liquidity for viable firms and avoiding a premature return to leverage-driven expansion that could reignite financial vulnerabilities.