China has officially repealed its stringent ‘three red lines’ policy, which targeted property developers and curbed their borrowing activities. This move marks an end to rules that led to a significant debt crisis impacting the nation’s broader economic landscape.

The ‘three red lines’ policy, established in 2020, set strict caps on debt-to-cash, debt-to-assets, and debt-to-equity ratios. Developers failing to comply were denied fresh loans, in a bid to control mounting debt. However, the policy backfired and resulted in a harsh liquidity crunch from mid-2021, culminating in multiple developers defaulting on obligations.

Analysts highlight lingering financial challenges in China’s property sector despite the rule change. Developers like China Evergrande and Country Garden remain in financial trials, seeking restructuring solutions. The easing measures, in conjunction with potential loan extensions on ‘whitelist’ projects, are seen as signals of market adjustment rather than immediate remedies.

(With inputs from agencies.)