Evergrande: Chinese property giant spooks global markets
Global markets fell this week as investors worried about the fate of Evergrande, China’s most indebted property developer, which is teetering on the brink of default.


“A wave of fear over Chinese economic growth swept through global markets on Monday,” say Narayanan Somasundaram and Jack Stone Truitt on Nikkei Asia. Markets dropped in Asia, Europe and the US, where the Dow Jones Industrial Average at one point fell 972 points (almost 3%) before paring losses to 1.8% before the close. Behind the bout of jitters lay the fate of Evergrande, China’s most indebted property developer, which is teetering on the brink of default.
An Evergrande bankruptcy would “amount to a financial tsunami”, says Caixin. The firm has ¥2trn (£227bn) in known liabilities (about 2% of China’s GDP), plus unknown amounts of off-book ones. Some analysts say it could be “China’s Lehman Brothers”, referring to the 2008 collapse of the US investment bank that helped trigger the global financial crisis.
Risks are manageable
That’s an exaggeration, say analysts at Barclays. Evergrande is big and there will be consequences for China’s real-estate sector. “But a true ‘Lehman moment’ is a crisis of a very different magnitude.” It would entail a “lenders strike” across the financial system, a “sharp increase in credit distress” outside real estate and banks not being willing to lend to each other in the interbank market.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Evergrande won’t cause that. First, its financial-system liabilities are much smaller than its headline liabilities (more than half the total is what it owes to suppliers) – it has around ¥227bn in bank loans and about ¥158bn in offshore and onshore bonds. Second, China has “navigated successfully through a number of defaults and restructurings” lately, including the financial conglomerate Huarong, which had about ¥1.4trn in liabilities. There’s no reason to expect policymakers to mess up this time. Third, Evergrande – and other Chinese property firms – aren’t at the mercy of wholesale funding markets, as Lehman was. “In an extreme scenario where capital markets are shut to all Chinese property firms … which is not occurring … regulators could direct banks to lend to such firms, keeping then afloat.”
Unpredictable consequences
The crisis is not a Lehman moment, concurs Bill Bishop in his Sinocism newsletter. “But it is ugly and will get uglier.” It’s rash to assume policymakers “have a full understanding of all the Evergrande liabilities and interconnections with other firms” Some form of bailout will happen, but “the lack of guidance from regulators seems to be spooking investors”.
This “is far from being a well-managed process”, agrees The Economist – hence bonds from other developers such as R&F, Fantasia and Sinic have slumped over fears they may be next. The underlying issue is that Xi Jinping, China’s president, is cracking down on excess debt in real estate as “one of several campaigns [he] is using to remould the country”. So the contagion risks aren’t just about markets. Real estate accounts for 20%-25% of GDP, thus “an extended campaign against developer debt could significantly lower China’s growth prospects... and lead to greater economic and financial turmoil down the road”.
Sign up for MoneyWeek's newsletters
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.
Cris Sholto Heaton is an investment analyst and writer who has been contributing to MoneyWeek since 2006 and was managing editor of the magazine between 2016 and 2018. He is especially interested in international investing, believing many investors still focus too much on their home markets and that it pays to take advantage of all the opportunities the world offers. He often writes about Asian equities, international income and global asset allocation.
Cris began his career in financial services consultancy at PwC and Lane Clark & Peacock, before an abrupt change of direction into oil, gas and energy at Petroleum Economist and Platts and subsequently into investment research and writing. In addition to his articles for MoneyWeek, he also works with a number of asset managers, consultancies and financial information providers.
He holds the Chartered Financial Analyst designation and the Investment Management Certificate, as well as degrees in finance and mathematics. He has also studied acting, film-making and photography, and strongly suspects that an awareness of what makes a compelling story is just as important for understanding markets as any amount of qualifications.
-
Review: Trasierra – a yoga retreat in the Spanish hills
Flora Connell joins a yoga retreat at Trasierra, in the Sierra Morena mountains north of Seville
By Flora Connell Published
-
How much should I have in emergency savings?
When your boiler breaks or your car won’t start, you can find yourself paying a hefty bill. How much should you have in emergency savings to cover unexpected costs?
By Katie Williams Published
-
Why Chinese stocks are so far out of favour
There’s little appetite for Chinese stocks despite low valuations.
By Cris Sholto Heaton Published
-
Chinese stocks slump on first trading day of 2025
Chinese stocks suffered in the new year from their worst first day of trading since 2016, despite a state stimulus package
By Alex Rankine Published
-
Cash in on China’s long-term growth with three competitive stocks
Dale Nicholls, portfolio manager of the Fidelity China Special Situations Trust, highlights three Chinese companies with scalable growth potential
By Dale Nicholls Published
-
Chinese stocks rally – can it continue?
Chinese stocks surged after the politburo, led by President Xi Jinping, vowed to ramp up fiscal support for the world's second-largest economy. Should investors be cautious?
By Alex Rankine Published
-
China’s post-covid investment boom off to a slow start. Should you still invest in China?
Advice Investors are no longer bullish on the China shop but the gloomy consensus on Beijing’s economy might be unfair. Should you invest in China?
By Kalpana Fitzpatrick Last updated
-
Chinese stocks are cheap – but for good reasons
News Chinese stocks are trading at an “undeniably cheap” 11.9 times earnings. But they are cheap for good reasons, and this may not be the buying opportunity it appears to be.
By Alex Rankine Published
-
The fallout from Alibaba’s huge data breach
News Chinese tech giant Alibaba is at the centre of a huge data-breach scandal – and the clampdown on the sector could now intensify.
By Dr Matthew Partridge Published
-
Chinese stocks rally as crackdowns ease
News China’s CSI 300 benchmark stockmarket index has rallied 13% since a low early last month as conditions improve for investors.
By Alex Rankine Published