For much of the past decade, China’s real estate sector has been a key driver of economic growth, contributing roughly a quarter of the country’s GDP. However, since 2021, the industry has become a persistent drag on the economy, with some estimates suggesting it has shaved off 2 percentage points from annual GDP growth. The slowdown has disrupted employment, dampened consumer confidence, and strained local government revenues, turning what was once China’s economic engine into a source of prolonged financial distress.
In response, Beijing has reversed its stringent property market policies implemented under the “three red lines” framework in 2020. Initially, the three red lines policy was meant to discipline highly leveraged developers and mitigate systemic financial risks. However, the abrupt tightening of credit access left many firms – especially privately owned developers with limited state backing – struggling to refinance their debts. As sales plummeted and liquidity dried up, defaults surged, including high-profile collapses such as Evergrande’s. By 2023, Beijing had little choice but to abandon its stringent stance and pivot toward a more supportive approach.
One of the clearest signs of this shift is the introduction of the real estate “whitelist” policy, designed to restore financing to stalled property projects. Launched in January 2024, the program encourages banks to lend to selected developments deemed viable, with local government officials offering guidance to direct funds toward housing completion and delivery.
According to a recent disclosure by the country’s financial regulator, banks have approved 5.6 trillion yuan ($780 billion) in loans for these projects since January 2024 – equivalent to a quarter of China’s annual fiscal revenue in 2024 or around twice Malaysia’s entire GDP. The sheer scale of the effort underscores the government’s urgency in preventing a full-blown crisis. Yet, despite this massive liquidity boost, the policy has so far failed to substantially improve the property market’s dire condition.
The data speaks for itself. Instead of picking up, housing completions in 2024 fell by 27.4 percent compared to the previous year, according to the National Bureau of Statistics. More concerningly, total developer financing – which includes bank loans – declined 17 percent year-on-year. This suggests that while whitelist loan approvals surged on paper, they have yet to translate into tangible financial relief for developers.
One major constraint is that banks remain deeply wary of lending to real estate developers, many of whom still struggle with high debt levels and weak sales. Following the wave of defaults from major developers, financial institutions have tightened internal lending standards, prioritizing risk containment over government directives. Many banks are cautious about extending credit to developers with weak balance sheets, fearing that further deterioration in property sales could lead to higher non-performing loans. This reluctance is compounded by the lack of effective risk-sharing mechanisms, leaving banks to shoulder most of the burden if projects fail.
As such, the whitelist program has disproportionately benefited state-owned or well-capitalized developers, while struggling private firms find it difficult to secure financing. On top of that, many projects are excluded due to strict conditions, such as prohibitions on misappropriating previously escrowed funds or having unresolved legal disputes. These requirements, while reasonable from a risk-management perspective, limit support to only the most financially sound projects. This creates a paradox: the firms and projects most in need of assistance are often the least able to qualify for it.
Some private developers have attempted to bypass these barriers by transferring their projects to local government financing vehicles (LGFVs). Originally set up by local governments to finance infrastructure projects, these quasi-governmental entities enjoy state banking and easier access to bank loans. However, many LGFVs themselves have amassed massive debt burdens following China’s 2008 stimulus and the heavy COVID-related spending of 2020-2021. Their finances have since deteriorated, particularly as their local government backers – historically reliant on land sales revenue – face growing fiscal pressures amid the property slump. In some cases, LGFVs have diverted the funds they received to cover their existing liabilities instead of using them for project completion. This unintended complication has further blunted the policy’s intended impact.
To improve the program’s effectiveness, policymakers need to address these bottlenecks. First, eligibility criteria should be refined to allow distressed projects greater access. Second, risk-sharing mechanisms – such as government guarantees or credit enhancements – could encourage banks to lend more confidently. Finally, greater transparency and oversight are needed to prevent misallocation and financial leakages, ensuring that loans serve their intended purpose.
The whitelist policy is an important step toward stabilizing China’s property sector, but its current limitations highlight the deeper structural challenges the industry faces. Without further adjustments, the initiative risks becoming yet another well-intended but ultimately ineffective intervention, leaving China’s property crisis unresolved and eroding confidence in Beijing’s ability to manage long-term economic challenges.
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