Copyright © BusinessAMBE 2023
While parallels are drawn between
This question is crucial given growing concerns about the stability of
In the news. "Just because
- People often ask whether
China could experience a financial crisis like theU.S. Lehman Brothers in 2008. -
Comparisons between the current situation in
China and the crisis in theU.S. focus on the real estate market, the amount of debt and the potential impact on the global economy.
Excessive debt and overproduction
Zoom in.
- Last week, it became known that 20 million paid-for homes in
China were never completed. -
The situation of Evergrande, one of
China's largest real estate developers, also illustrates the vulnerability of the sector.-
With billions in debt and looming insolvency, Evergrande is seen as a potential starter for broader financial instability in
China .
-
With billions in debt and looming insolvency, Evergrande is seen as a potential starter for broader financial instability in
-
While the Chinese government maintains control over many large financial and real estate entities, there is a clear dichotomy between the treatment of state and non-state-owned enterprises.
-
SOEs, such as
China Huarong Asset Management , have received support. This indicates an uneven playing field and the possibility of government intervention in the market. Private companies should not receive direct support.
-
SOEs, such as
- The Chinese government's choices will be crucial in determining the future of the financial sector. The decision whether or not to bail out certain entities will not only affect the domestic market. It will also impact international investors and the global perception of the Chinese market.
Crisis in
Zoom out.
- Many countries remain dependent on Chinese production and consumption. This makes a financial crisis in
China a global concern. -
The experiences of the Lehman Brothers crisis - which led to a global crisis -, and the real estate bubble in
Japan - which had much less impact on the global economy - highlight the complexity of managing financial crises and the unpredictability of their consequences. China's financial market and economy also have unique characteristics, such as strong state influence, which presents both risks and opportunities.-
How
China deals with its current challenges will not only shape its own economic future. It will also set a precedent for other emerging economies.
What next? In 2008, the
China has the resources and administrative capabilities to pull off a similar feat.- The country may even be in a stronger position thanks to existing state holdings of major financial institutions.
- However, the outbreak of such a crisis would still be seen as a "Lehman moment," with a potentially equally profound impact, Bennett concludes.
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