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The revenue of Evergrande Group in 2022 dropped further to * yuan. Since 2015, the revenue of the company has increased significantly, but this growth was fueled by debt. Over the same period, Evergrande’s liabilities ballooned to more than ** yuan.

Not an isolated case

Overleveraging is a systemic problem in the Chinese real estate industry. High growth and high demand had created the ideal environment for the speculative behavior of property developers. Evergrande is not the only company that was unable to service its bond payments. Fantasia, Modern Land, and Sinic Holdings have also already missed payments. Other property developers, such as Shimao, Seazen Holdings, and Central China Real Estate had already warned investors that they might also default on loans.

New rules

The liquidity issues of Chinese real estate companies did not come out of nowhere. For many years, the Chinese government had been aware of the problems in the industry but was unable to address them adequately. In August 2020, policymakers introduced their strictest regulation to date, dubbed the “Three Red Lines”. The framework puts a limit to the amount of debt property developers can take on. As a result, the sector was subjected to pressure to deleverage. As of Summer 2021, around half of China’s ** leading real estate companies did not comply with the “Three Red Lines”.