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<p>This study examines the impact of the “Three Red Lines” policy in China, a regulatory initiative aimed at reducing leverage in the real estate sector, on corporate debt risk. Using a difference-in-differences approach, we find that the policy significantly increased bond spreads and realized defaults among real estate developers, particularly for non-state-owned developers (non-SODs). In contrast, state-owned developers (SODs) were unaffected. The divergence appears driven by deteriorating financial and operational performance among non-SODs. The policy also raised financing costs for non-SODs, exacerbating their financial distress. These findings suggest that, although designed to reduce systemic risk, the policy inadvertently heightened debt risk for non-SODs, underscoring the need for more targeted regulatory frameworks.</p>

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Deleveraging Policies and Debt Risk: Evidence from China’s Real Estate Bonds

  • 期刊论文

  • 发表日期：

    2026年6月26日

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  • Yi Shi,
  • Yutong Hao,
  • Mi Xie,
  • Kenneth A. Kim

摘要

This study examines the impact of the “Three Red Lines” policy in China, a regulatory initiative aimed at reducing leverage in the real estate sector, on corporate debt risk. Using a difference-in-differences approach, we find that the policy significantly increased bond spreads and realized defaults among real estate developers, particularly for non-state-owned developers (non-SODs). In contrast, state-owned developers (SODs) were unaffected. The divergence appears driven by deteriorating financial and operational performance among non-SODs. The policy also raised financing costs for non-SODs, exacerbating their financial distress. These findings suggest that, although designed to reduce systemic risk, the policy inadvertently heightened debt risk for non-SODs, underscoring the need for more targeted regulatory frameworks.