Evergrande wake-up call: No one's too big to fail in China's property market

BEIJING - For years, investors happily bought into the dollar bonds of Chinese real-estate developers, betting that the biggest and most aggressive would become too big to fail. Even during the global markets selloff in March, private bankers told their wealthy clients not to worry. In the worst case, they could just hold those notes until maturity, and enjoy the juicy coupon payments.

Nonetheless, investors were unnerved. The document, fake or not, struck the right note. Just over a month ago, Beijing proposed a"three red lines" approach for major developers. Those exceeding all three leverage metrics monitored by regulators are forbidden from borrowing more. Evergrande has solidly crossed that threshold.

Out of the 334 developers likely subject to the new rules, only 50 of them, accounting for 36 per cent of total industry borrowing, failed all three criteria, according to Gavekal Dragonomics. Meanwhile, developers accounting for just under half of total debt passed all three tests. Similarly, of the 18 largest developers tracked by Bloomberg Intelligence, 11 are in the green zone and can raise their borrowings by 10 per cent to 15 per cent per year.

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