A default by embattled property developer China Evergrande Group, anticipated to happen as soon as this week, is unlikely to start a domino effect threatening 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, reports the South China Morning Post.
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 $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.
“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.”