Chinese property developers’ 2020 annual results showed that the “three red lines” meaningfully impacted their financial conditions, a trend that is continuing this year. Developers used accounting tricks to improve the financial ratios monitored by regulators, especially cash positions relative to short-term debt. However, the credit environment remains restrictive, and this has forced developers to slow construction, cut back on land purchases, and preserve cash to manage rising debts. All of these factors should contribute to slowing cyclical activity in the second half of 2021.
