Vanke is reigniting the debate China wants to bury

By Shuli Ren

CHINA seems to find solutions to the world’s thorniest economic problems. Its exports juggernaut is marching on despite President Donald Trump’s tariffs. The domestic AI industry is booming without Nvidia Corp.’s high-end chips.

But once in a while, a dormant zombie comes back to haunt it, serving as a reminder to global investors that the government hasn’t dealt with its most pressing economic issues even as the stock market rallies.

Shenzhen-based China Vanke Co., one of the nation’s biggest developers, is this zombie. Shenzhen Metro Group Co., a state-owned enterprise that is its largest shareholder with a 27% stake, seems to have had a change of heart lately on how much financial support it’s willing to give.

The urban rail operator, owned by the city government, is asking Vanke to retroactively pledge collateral for existing unsecured loans worth 20.4 billion yuan ($2.9 billion). It’s also setting a cap on the loan facilities it will provide.

This came as a shock. Throughout the year, Shenzhen Metro has been seen as the entity the city government will use to rescue Vanke. As of Oct. 30, roughly 70% of its loans were unsecured, in what investors perceive as the most concrete sign of an informal bailout.

The burning question now is who will be responsible for Vanke’s bills. The company needs to repay 5.7 billion yuan of public bonds in December, and another 7.7 billion yuan in the first half of 2026. As of June, the developer’s cash pile was only able to cover 44% of its short-term debt, the lowest since data became available in 1992.

It’s understandable why Shenzhen Metro is balking. Vanke is growing into an ever-expanding black hole. Contracted sales are at risk of falling by 40% this year, creating a cash shortfall north of 100 billion yuan, according to Bloomberg Intelligence. Without the Shenzhen government’s support, Vanke may not be able to survive, and its bondholders could be staring at debt restructuring — or even worse, default.

Five years into a property downturn, Beijing has been using partial, unofficial bailouts to diffuse potential financial crisis caused by developer blowups. Shenzhen Metro, for instance, is widely seen as the lender of last resort to Vanke, even though its stake could classify the SOE as a passive investor.

Until recently, this half-baked effort has worked reasonably well. The pace of corporate delinquencies has slowed. Meanwhile, the biggest developers that defaulted have largely hobbled toward the end of their restructuring, as creditors accept more onerous terms.

Beijing, in turn, is more than happy to declare mission accomplished. In recent policy meetings, the property recovery was put on the back burner, while technology and innovation took the center stage. Unlike last year, the government no longer pledges to “halt the real estate market decline.”

But this big headache won’t go away on its own. New-home sales extended a slump in October, falling 42% from a year earlier, according to data compiled by Bloomberg. In other words, Vanke is the norm, not an exception.

Meanwhile, the latest kerfuffle is reigniting a debate over how Beijing plans to diffuse the developer time bomb. Some believe there’s no too-big-to-fail in China, and that the likes of Vanke will eventually ask to extend their borrowings or spiral into a default. Others have more political stability in mind. In their view, the government doesn’t want to rock the boat any further and will find another SOE to come in as a liquidity provider.

Either way, Shenzhen’s reluctance to give unconditional love to Vanke shows that China’s real estate woes are deepening. Beijing can’t just turn the page yet.

BLOOMBERG OPINION