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Bankers and fund managers are now rushing to weigh the damage of what could become one of the biggest corporate restructurings in China’s history, involving over $50 billion of outstanding debt — including more than $7 billion held by lenders and bond investors overseas. They warn that Vanke’s worsening problems will send ripples throughout China’s economy and its financial system, threatening losses for banks and ramping up pressure on the long-struggling property sector.
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The chaos at Vanke has an unmistakable sense of deja vu for investors who endured around $130 billion of defaults over the past four years, as the property crunch toppled almost all of China’s once high-flying developers. But while giants like China Evergrande Group had binged on debt and spent wildly, Vanke was considered safer — and better connected. Some investors even considered it too big to fail.
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The warning signs had been building for years.
In late 2024, a mid-level executive at a Chinese regional bank started to worry about his firm’s exposure to Vanke.
He noticed a simple problem: The property company had an asset-liability ratio of around 70%, meaning it had $100 to cover every $70 of debt. But real estate prices had been falling for years, with a gauge of second-hand home prices in Shenzhen down more than a third from its peak. How could banks be sure that Vanke’s assets would continue to be worth enough to cover its debts?
The banker, suspecting Vanke’s debt would soon run into trouble, submitted a proposal to his bosses to reclassify the company’s loans as non-performing. His plan was rejected. His bosses pointed out that other big banks weren’t calling the loans non-performing, and so there was no need to go against the grain.
State banks are sometimes group-thinking animals, he said.
There was a logic behind his managers’ reluctance to act. At the time, it still seemed likely that Shenzhen Metro — and perhaps even the Shenzhen government — would be there to help.
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Vanke’s roughly $160 billion of assets and more than 125,000 employees gave it a huge importance to Shenzhen, a bustling trade hub. The city’s busy skyline is dotted with Vanke developments, including packed residential blocks, towering office buildings and high-end shopping malls. The Vanke Centre, its sprawling headquarters, flanks the city’s beach getaway of Dameisha.
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Around 45% of Vanke’s roughly $50 billion debt load is unsecured, according to Barclays research based on data to the end of June, making it particularly vulnerable if the company is forced to restructure. Some of Vanke’s loans are protected by a so-called letter of comfort — a vague attempt at reassurance that has questionable legal value.
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The yearslong crisis is also fueling a rising sense of anxiety among Chinese officials, who are considering measures to turn around the property market including mortgage subsidies and tax rebates. On Thursday, policymakers said they would encourage more purchases of unsold homes.
Officials recently ordered two private data agencies to freeze the publication of home sales data. Shanghai authorities have censored posts that express a pessimistic outlook about the real estate sector. There is also a growing self-censorship: At a credit ratings conference in early December, speakers didn’t refer to Vanke by name — referring only to a debt extension by “a major developer.”
“The core issue with the property market is the glut of housing inventory and the severely dented confidence of homebuyers,” said Kelvin Lam, senior China economist at Pantheon Macroeconomics. “But the ongoing debt problems aren’t helping the situation, and suggest that the property sector is still very far away from being out of the woods.”
