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Shuli Ren

Kaisa Shows China’s Three Red Lines Are Rubbish

They are supposed to certify financial health. But the developer’s surprise missed payments are scary proof of a culture of shadow financing.

The loan that Kaisa forgot.

The loan that Kaisa forgot.

Photographer: Sasha/Hulton Archive

The desperate game of survival being played by Chinese real estate developers just got nudged to a whole new level. Shenzhen-based Kaisa Group Holdings Ltd., the second largest high-yield dollar-denominated bond issuer after China Evergrande Group, said it missed payments on wealth management products it guaranteed because of “unprecedented pressure on its liquidity.” 

On paper, Kaisa looked great. In June, the developer passed the so-called “three red lines,” — the accounting metrics Beijing looks at to decide who gets to borrow. It even managed to issue a 300 million yuan ($46.9 million), 7% coupon bond in the mainland, a remarkable breakthrough for a developer that defaulted in 2015. It’s not hard to see why investors loved Kaisa.