[Diagnosis] China Evergrande Bankruptcy Crisis, Prelude to Global Economic Growth Slowdown

Experts: "Ultimately, the Chinese Government Will Intervene"... "No Second Lehman Crisis"
Global Growth Concerns Rise as Chinese Real Estate Investment Declines
Iron Ore, Copper, and Other Commodity Prices Expected to Fall

[Asia Economy New York=Correspondent Baek Jong-min] U.S. media and stock market experts are closely examining whether the collapse of Hengda Group could trigger a second Lehman Brothers-type bankruptcy crisis. With the New York stock market also falling under the influence of Hengda Group's potential collapse, analyzing the impact of this situation is essential.

Although the collapse of Hengda Group is unlikely to escalate into a second Lehman Brothers crisis leading to an international financial meltdown, it is analyzed that it could serve as a trigger for economic slowdown not only in China but globally.

Apartments under construction by Evergrande Group, China's largest real estate developer, stand in a row.
[Image source=Reuters Yonhap News]

Ed Yardeni, Chairman of Yardeni Research, commented on Hengda Group's situation, saying, "It looks similar to the Long-Term Capital Management collapse in 1998. At that time, the U.S. Federal Reserve (Fed) and central banks worldwide responded swiftly, preventing a global impact."

Hengda Group must pay interest on debts exceeding $300 billion by the 23rd.

Yardeni assessed that even if Hengda Group collapses, the impact would be significant enough that the Chinese government would inevitably intervene. He predicted that strong restructuring or management changes would be unavoidable.

Yardeni also forecasted that even if the Hengda Group crisis is resolved, the Chinese stock market would find it difficult to rebound in the short term.

He said, "The Chinese Communist Party is intervening in the market and tightening control over companies. I would not buy Chinese stocks during this downturn."

Frank Benjilali, Head of Asian Equity Strategy at Soci?t? G?n?rale, also noted, "Debt restructuring, Hengda, and internet regulations are overlapping, maximizing volatility in the Chinese market."

Benjilali further stated, "Even if Hengda collapses, it will not spread into a Lehman Brothers-like situation. However, with the real estate sector being restrained, China's growth slowdown may occur." The real estate sector accounts for a significant portion of China's GDP.

The plunge in raw material prices such as iron ore and copper also reflects concerns about China's economic slowdown. China's growth deceleration implies the possibility of a global economic downturn.

As the crisis originating from China spreads, investors' attention is focused on the U.S. Fed's decisions. If the Fed initiates early tapering this week or advances the expected timing of interest rate hikes, originally forecasted for 2023, market shocks could intensify further.

This content was produced with the assistance of AI translation services.