What is going on? China’s Evergrande is too grand to fail

 

The troubles of Chinese conglomerate Evergrande have dominated headlines after it warned once again that it could default on its astronomical debt because of a cash crunch. Experts have characterized the firm's struggles as a major test for Beijing that risks turning into China's Lehman Brothers moment, sending shockwaves across the world’s second biggest economy.The group is china’s most indebted developer, Chinese authorities are unlikely to let evergrande fail.

Now, bond investors are once again holding their breath as Evergrande Group, China’s second largest private property developer, teeters on the brink of default. The firm holds the title of being the “world’s most indebted property developer” and serves as a symbol of corporate excess. As things often go during a boom, Evergrande leveraged outragious amounts of credit during China’s real estate craze to fuel growth. With the onset of the pandemic and a long-term slowdown in China’s property market, things have quickly come spiraling down on the developer.

As investors and analysts alike have been considering whether or not Evergrande is economically important enough to warrant a bailout, investor sentiment is largely pessimistic on government intervention. Evergrande’s plight differs from Huarong’s for many reasons due to the nature of their business and the size of their debts, all which point to Evergrande not being “too big to fail.”