Again, your claim is that if something isn't explicitly specified, then it's allowed. This is the difference between common law (popular in the UK, US, Canada, Australia, etc.) and civil law (used everywhere else, including most of Europe, South America, China, Russia, etc.)
The question isn't about the concept of international law, but whether international law should follow civil, common, customary principles (or even Sharia, Halakhah).
Basically, government officials knew that at some point they needed to aggressively overbuild real estate capacity in order to meet the urbanization demands. I think they predicted an incorrect curve: whereas they perhaps anticipated that urbanization would follow a trend more like Korea (74% at a similar stage in their urbanization trajectory), instead China is following a curve similar to Taiwan (~66%). A mistake in policy, yes, but it has localized effects.
Plus, I think you're missing a far more essential point: China doesn't give a fuck if every real estate developer goes bankrupt. That's just a cost of doing business. Instead, China's just swooping in and buying up distressed assets to turn into public housing. Homeowners aren't left holding the bag: developers are.