Beijing is stepping up efforts to reinforce rules, which could lead to greater scrutiny of China's property developers for violating environmental laws.
Teresa Kong, head of fixed income at investment firm Matthews Asia, said that the latest move by Chinese authorities to order indebted property developer China Evergrande to demolish 39 buildings of its Ocean Flower Island project came as a surprise to many.
It caught both the company and investors by surprise. She told CNBC on Wednesday that the government has been very vocal about implementing environmental policies.
The Ocean Flower Island is a man-made archipelago in Danzhou, which Chinese state media says is the world's largest of its kind. According to the Wall Street Journal, the island had harmed the marine environment and was partially responsible for causing widespread damage to coral reefs.
Kong said that it could be other property developers as well that could have skirted the environmental rules.
Kong said that the environmental wildcard is one that we should consider, as China has stepped up in terms of environmental protection.
The largest Chinese real estate developer by sales is Evergrande, which issued $19 billion of dollar-denominated debt last year. The developer had a total of $300 billion in liabilities and was on the verge of collapse.
Kong said that China's environmental protection laws are not new. She said that companies that don't abide by the rules strictly are getting the type of scrutiny that they deserve.
The property sector has a lot of growth. It's an important part of the GDP of China.
Evergrande said Tuesday it will continue to maintain communication with its debts, try to resolve risks and safeguard the legitimate rights and interests of all parties.
Evergrande is no longer able to sell new homes, so it is highly likely that the company will default, according to S&P Global Ratings.
Kong is bullish on China's property sector for the long-term despite the company's troubles.
She said that China is still far below the U.S and Japan in terms of urbanization rates.
The property sector has a lot of growth. Kong said that it is an important sector for the GDP of China.
Evelyn Cheng was a contributor to the report.
