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Business

Default by China Evergrande unlikely to spark malaise that threatens China’s financial system, analysts say

  • Comparison to collapse of Lehman Brothers ‘far-fetched’, analysts say
  • Beijing not expected to take action, Evergrande hit to financial system ‘manageable’, S&P says

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Evergrande’s headquarters in Shenzhen. Photo: AFP
Chad Bray
A highly anticipated default by China Evergrande Group as soon as this week is unlikely to spark a broader malaise that threatens the overall stability of China’s financial system in the same way the collapse of investment bank Lehman Brothers did during the global financial crisis in 2008, according to research analysts.
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The world’s most indebted property developer is supposed to make a series of interest payments on its debt beginning on Thursday, but S&P Global Ratings and other credit rating agencies said a default is “likely”.
The Shenzhen-based company had some US$300 billion in liabilities at the end of the first half of this year, and concerns about a potential contagion have sent borrowing costs soaring for other property developers and sparked a sell-off in stocks from Hong Kong to New York on Monday.

“We don’t expect government actions to help Evergrande unless systemic stability is at risk. A government bailout would undermine the campaign to instil greater financial discipline in the property sector,” S&P Global Ratings analysts Matthew Chow and Christopher Yip said in a research note. “Government support to prevent a default is only likely if contagion risks cause other large developers to fail. This could threaten the stability of the financial system and economy. We think the hit to the financial system from Evergrande alone will be manageable.”

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Angry protest at headquarters of China Evergrande as property giant faces liquidity crunch

Angry protest at headquarters of China Evergrande as property giant faces liquidity crunch

The worries about cash-strapped Evergrande’s ability to repay its massive debt load comes as Beijing has been trying to cut borrowing levels in China’s property sector and after warnings by foreign investors about rising debt levels in the mainland.

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