China’s “Lehman Moment”? Maybe.
Ever thought about China’s property market going belly up? Picture this: the world’s number two economy is teetering on the edge of its very own “Lehman moment”.
What’s Happening Now:
- China’s property market disaster.
- The “Lehman moment” – why you should be concerned.
- Beijing’s desperate scramble to keep the ship afloat.
China’s Property Crisis: It’s Worse Than You Think
China’s real estate sector is a ticking time bomb. China Evergrande Group, a big-shot developer, is drowning in losses – a staggering 812 billion yuan (US$112 billion) for 2021 and 2022. And it’s not the only one. Country Garden, another property behemoth, is flirting with a bond default.
For once I agree with something the seriously flawed, fiat money economist John Maynard Keynes once quipped, “When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done.” Couldn’t have put it better myself.
Lehman Moment: It’s Not Just a Possibility, It’s a Promise
“Lehman moment” – a domino effect of financial catastrophes triggered when one company’s mess becomes everyone’s nightmare. While some may think that a full-blown Lehman moment is unlikely in China, the property sector’s mounting troubles are about to give Beijing a reality check.
Possible Short Term Band-Aids to Survive the Impending Meltdown
- Policy Intervention: Beijing might pull some tricks to steady the property market and dodge a crash.
- Debt Restructuring: Companies could beg their creditors to avoid default and rejig their debts.
- Bondholder Bailouts: The government could play the hero and bail out bondholders to avoid mass hysteria.
Asian Crisis Contagion Management – Been There, Done That
- 2008 Financial Crisis: Central banks worldwide went all guns blazing with monetary policy measures to fight the crisis. This will only increase inflation rates to epic proportions.
- 1997 Asian Financial Crisis: Governments did some soul searching, enacted reforms and groveled to the IMF to restore stability. Hopefully, they won’t end up at the IMF’s doorstep.
Contributing article: https://www.scmp.com/economy/china-economy/article/3231900/chinas-property-crisis-plagues-its-economy-and-financial-system-lehman-moment-looming
