Barclays Research argues that while possible Evergrande default could be a significant drag on the property sector, it is far from being China's Lehman moment.
"China’s situation is very different. Not only are the property sectors’ linkages to the financial system not on the same scale as a large investment bank, but the debt capital markets are not the only, or even the primary, means of funding. The country is, to a large extent, a command-and-control economy. In an extreme scenario, even if capital markets are shut to all Chinese property firms (which is not occurring and is only a tail risk at this point), regulators could direct banks to lend to such firms, keeping them afloat and providing time for an extended ‘work-out’ if needed," Barclays notes.
"A prospective Evergrande default is still a serious issue. But, we think, the effects are primarily on growth, and unlikely to be exacerbated by a financial crisis. This is a challenging moment for Chinese authorities but to our mind it is far from being China’s Lehman moment," Barclays adds.