{"id":8612,"date":"2021-09-25T07:00:35","date_gmt":"2021-09-25T07:00:35","guid":{"rendered":"https:\/\/focus.cbbc.org\/?p=8612"},"modified":"2025-04-23T09:50:18","modified_gmt":"2025-04-23T09:50:18","slug":"what-would-the-collapse-of-evergrande-mean-for-british-banks","status":"publish","type":"post","link":"https:\/\/focus.cbbc.org\/what-would-the-collapse-of-evergrande-mean-for-british-banks\/","title":{"rendered":"What would the collapse of Evergrande mean for British banks?"},"content":{"rendered":"

The misfortunes of Chinese property giant Evergrande have dominated the headlines recently, but presenting Evergrande’s predicament as China’s version of the collapse of Lehman Brothers is not accurate, writes Joe Cash<\/span><\/h2>\n

Evergrande currently faces liabilities of $305 billion (\u00a3222.8 billion) and was supposed to pay its creditors $83.5 million (\u00a361 million) in bond interest by noon on Friday, 24 September Hong Kong time. The interest repayment deadline passed without any announcement from Evergrande or the Chinese government. Domestic and foreign investors are spooked; analysts have drawn comparisons between the Chinese giant and Lehman Brothers. Evergrande now has a 30-day grace period to settle things with its creditors before the business officially defaults on its loans. The question on everyone\u2019s minds now is whether the government will intervene to save the firm. If it does not, the days of certain Chinese companies being \u2018too big to fail\u2019 are over.<\/span><\/p>\n

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Presenting Evergrande’s predicament as China’s version of the collapse of Lehman Brothers is not accurate. Of course, there are similarities between the two cases that come to mind: Both companies speculated heavily on real estate, took on lots of debt spread deep across their respective economies, and utilised opaque operating practices that enabled them to throw regulators and watchdogs off the scent until trouble was well and truly afoot. However, the main differentiating factor is that one company got too clever with the markets and got its foot bitten off, while the other got too complacent when dealing with the CCP<\/a> and will likely get a public reckoning, but nothing more.<\/span><\/p>\n

How did it come to this?<\/h4>\n

While Evergrande might be the tip of a massive iceberg (also including firms such as Country Garden and Vanke), Beijing has planned on deflating the decades-long property boom balloon it created for itself for a while. In 2017, President Xi<\/a> gave a speech to the 19th Party Congress where he made clear the party\u2019s view that \u201cHouses are for living in, not speculation;\u201d<\/span> the People\u2019s Bank of China red-flagged the enormous debt levels<\/a> of private property developers, such as Evergrande, the following year. As a result, unlike Lehman Brothers, which was ultimately torn apart by market forces, Evergrande will most likely go through a controlled demolition.<\/span><\/p>\n

But there will inevitably be ripples \u2013 a big institution could be coming down. By comparison, when Greece almost brought down the Eurozone in 2012, its national bank faced debts of $200 billion (\u00a3146.1 billion). As a result, President Xi could be looking at undertaking one of the largest debt restructurings in history.<\/span><\/p>\n