If you are going to buy a flat in China, common advice goes, you should buy it from a “model student”. That is, a developer who has followed the rules, kept debts under control and refrained from excessive expansion. Vanke, a Shenzhen-based firm and one of China’s biggest homebuilders, once qualified as such. Its name appears on lists of China’s strongest developers. It has a good record of completing homes on time. Most important, it is state-backed. So it is all the more surprising that Vanke is now flunking out of school and may become the first developer in the current property crisis to receive a bail-out.
The plan for a rescue has been widely reported but, as of February 20th, remains unconfirmed. It is said to include using 20bn yuan-worth ($2.8bn) of local-government special bonds to help pay off Vanke’s debts that will come due this year, which amount to over 50bn yuan. Insiders reckon the provincial government of Guangdong, China’s rich, southern manufacturing hub, will issue the bonds and use them to purchase land reserves and unsold housing inventory from Vanke. Other forms of finance may also be made available.
Until now, firms have been allowed to default. Evergrande, the world’s most-indebted developer, did so in 2021, sparking what has been China’s worst property downturn in decades. Country Garden, another giant, ran into problems in 2023. Central authorities have not allowed it to be bailed out owing to a fear that doing so would encourage risky behaviour in other firms. Such rescues would also end up supporting China’s most reckless capitalists, who have accumulated mountains of debt. Instead, officials have encouraged local governments to buy up unsold homes and fund the completion of unfinished ones, regardless of the builder.
If a bail-out for Vanke is forthcoming, China’s leaders will have blinked. Although the rescue would be organised by local authorities, it would have required the approval of Beijing’s top dogs.
What lies behind the special treatment? Vanke is a hybrid public-private firm: Shenzhen Metro, a state transportation outfit, holds a 27% stake. Since the developer began to struggle last summer, it has been watched as a gauge for just how far officials are willing to let the market fall. Things are already worse than many expected. In January Vanke’s sales fell by 43% year on year. The same month Zhu Jiusheng, the firm’s chief executive, was reported to have been detained. He later stepped down, citing “health reasons”. Not long after, the company announced a new slate of executives hailing from Shenzhen Metro and other state firms—a sign that it was coming under greater government control.
China’s leaders are loth to let state companies go bust. Investors and homebuyers might ask if others will face the same fate. COLI, one of the biggest state builders and another model student, would probably face difficulties raising funds. Homebuyers could stop buying its properties, fearing it would run out of cash before their properties were finished. That might lead to another collapse in confidence.
But there is more to the bail-out than state pedigree. China’s property market appeared to be tentatively stabilising in the final months of 2024, owing to state intervention. Now things are heading in the wrong direction once again: property sales in 30 of China’s largest cities fell by 16% year on year in the first six weeks of 2025. The central government does not want any further deterioration. Thus the potential rescue is not about a single developer, says Zhikai Chen of BNP Paribas, a bank. It is about “stopping another cascade of financial distress or defaults that will interrupt the stabilisation of the market”.
As one of China’s largest developers, Vanke is still building nearly 500,000 homes and is planning another 300,000. A debt default might derail these projects, many of which have already been bought. Tens of thousands of workers could be laid off. Vanke’s model-student days are over; a successful rescue could, however, serve as a model for how officials can avoid the death of their remaining big developers. ■
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