"Hengda Crisis Differs from Lehman Shock... Limited Impact on Chinese Economy"

[Asia Economy Reporter Seulgina Jo] There is a forecast that the liquidity crisis of Evergrande Group, China's largest private real estate developer, will not threaten the entire Chinese economic system.

On the 22nd, the Hong Kong South China Morning Post (SCMP) cited international financial experts, reporting that the Evergrande crisis is different from the past Lehman Brothers incident. Evergrande, which is facing a liquidity crisis due to verbal investment, will default if it fails to pay $119 million in interest due on the 23rd. However, even if such a default materializes, it is expected that it will not escalate into a problem that threatens the overall Chinese economy.

Alexander Von, an analyst at financial software provider Murex, pointed out that comparing the Evergrande incident with the Lehman Brothers crisis in the U.S. 13 years ago is unreasonable. At that time, when Lehman Brothers went bankrupt due to the subprime mortgage crisis caused by the decline in U.S. real estate prices, the impact was a direct blow not only to the U.S. but also to the global financial market.

Von analyzed, "There is a risk that the Evergrande crisis could affect the financial market through the real economy," but added, "We are not standing at the doorstep of a Chinese version of the Asian financial crisis."

Citigroup also stated in a report that it does not expect the Evergrande crisis to cause a Lehman Brothers-like event in China and forecasted that authorities will try to prevent a systemic crisis.

International credit rating agency S&P recently stated in a report, "The Chinese government will not support Evergrande unless the stability of the system is at risk." The report analyzed, "The Chinese government will only intervene to prevent default if Evergrande's crisis spreads to other large real estate developers, as this could threaten the stability of the entire Chinese financial system and economy," and added, "(However) the individual crisis of Evergrande alone is considered manageable."

There are concerns both inside and outside China that if the real estate industry, which has been one of the pillars supporting China's rapid growth, collapses, large state-owned banks that have dealt with these companies will bear astronomical non-performing loans, causing a major shock to the financial system. However, regarding this, global investment bank Barclays explained in a report, "Chinese banks' assets amount to $45 trillion and liabilities to $30 trillion," and "Evergrande's debt, including $35 billion in bank loans, is not large enough to change the situation."

Global stock markets, which had plunged as the Evergrande Group's bankruptcy crisis intensified the day before, are also showing signs of recovery. Currently, investors are closely watching the results of the FOMC regular meeting.