Policy-induced deleveraging and corporate financial resilience: a DuPont analysis of China Vanke, 2019-2025

Abstract

The regulatory structure of the Three Red Lines in China has been implemented to curb the level of leverage of the property sector; however, regulatory leverage reduction does not always entail increased corporate financial resilience. It is a study of China Vanke Co., Ltd. between 2019 and 2025 based on a modified DuPont model, chain-substitution decomposition, cash flow measures, and comparison with peers such as Poly Developments, China Merchants Shekou, and Gemdale. The interest-bearing/non-interest bearing liabilities are distinguished by the analysis and contract liabilities are eliminated in the interpretation of effective leverage. Return on equity at Vanke dropped to -31.94 percent in 2025 compared to 21.78 percent in 2019. The decomposition demonstrates that the main cause of deterioration in the net profit margin was the main contributor: compared to the 2019 baseline, its share in the change in the ROE was negative by 76.74 percentage points, whereas total asset turnover and the equity multiplier were positive by 3.54 percentage points and 19.48 percentage points respectively. Conventional leverage decreased over much of the period, but the cash-to-short-term-debt ratio dropped under the regulatory threshold in 2024 and net gearing was over 100% in 2025 due to loss depreciation of equity. The results indicate that compliance with leverage may go hand in hand with a decrease in resilience as profitability and cash conversion decline, which makes it necessary to assess the quality of earnings, liquidity, turnover and liability structure as a single unit.