Liquidity problems at two immensely large Chinese companies with real estate holdings are adding to concern that a bubble in Chinese property values could burst and spray the rest of the world with financial contagion.
Some have even speculated that the companies’ liquidity problems constitute a “Lehman moment” for China — a reference to U.S. banking giant Lehman Brothers’ September 2008 bankruptcy filing that sparked the subsequent financial crisis, and whose aftershocks still ripple through decision-making in commercial real estate in the forms of tighter loan underwriting and a general aversion to big risks.
So far, though, the comparison between now and 2008 doesn’t hold.
China’s complex economic problems, including property sector turmoil, rising local government debt and soft consumption, have sparked calls for Xi Jinping to unleash billions of dollars to shore up spending, arrest a slide into deflation and prop up a weakening currency. Yet the Chinese president has refrained from providing broad-based stimulus, the latest example of how his focus on domestic and external security is shaping his response to problems in the world’s second-biggest economy, analysts said.