China Evergrande Group’s logo is displayed on a phone screen in this illustration photo taken on September 27, 2021.Jakub Porzycki | Nurphoto | Getty ImagesA decision to liquidate the embattled property giant China Evergrande this week has raised concerns about China’s struggling real estate sector. However, analysts believe any fallout is likely to be limited, with one suggesting it may even have a positive impact.Shehzad Qazi, chief operating officer at China Beige Book International, told CNBC on Tuesday that the Chinese government will need to take on the financial responsibilities of large company failures within the property sector, such as Evergrande, in order to prevent broader economic consequences.On Monday, a Hong Kong court issued a liquidation order to the troubled property developer after it failed to reach a restructuring agreement with creditors.”That is actually the good news — China’s non-commercial financial system ensures there won’t be a ‘Lehman moment,’ since the government effectively controls all of the intermediaries in the economy and can force them to continue to lend, supply, borrow, etc. In other words, no massive credit event,” Qazi told CNBC.He was referring to the collapse of Lehman Brothers in 2008, which triggered a financial derivatives crisis and ultimately led to a global economic recession.Qazi also mentioned that if the fiscal stimulus measures in China proved to be effective and substantial, they could help improve sentiment and stimulate economic growth, which he believes will be slower this year than the last.”Can you stabilize the property market? And then what is the nature of stimulus fiscal stimulus look like? Because monetary stimulus has quite frankly stopped working. It’s not effective in China,” he added.In 2023, China’s GDP grew by 5.2%, compared to a 3% increase in 2022.China Evergrande, once one of the country’s largest property developers, is the most indebted company in the world, with over $300 billion in liabilities.Despite several months of delays, Evergrande still had not been able to put forward concrete restructuring plans, according to Hong Kong Justice Linda Chan.Still, concerns about the potential spillover effects of Evergrande’s likely collapse were relatively contained, even as its shares were suspended by the Hong Kong Stock Exchange following a 20% drop on Monday.China’s property sector is a cornerstone of its economy, but significant debts among its major developers have led to notable defaults. For instance, Country Garden, another major developer, has faced difficulties in repaying its own debts. Last month, the company said it might avoid defaulting on its yuan-denominated bonds after being deemed to have defaulted on its dollar-denominated debt.”Given how many defaults have occurred, the vast majority were offshore, there usually aren’t cross default clauses that mean that these defaults offshore have to be recognized onshore,” Charlene Chu, China macrofinancial senior analyst at Autonomous Research, told CNBC’s “Squawk Box Asia.””A lot of the problems that we’ve seen in China’s property market with all of these defaults have actually not spilled over into any domestic financial instability,” Chu said.Still, there are lingering questions regarding whether China will acknowledge the Hong Kong court order for Evergrande’s liquidation, given that most of the company’s assets are located in the mainland.Analysts at Commerzbank said: “Even if a court in mainland China recognizes the Hong Kong court order, Beijing’s more aggressive stance to contain risk as well as potential political considerations mean the fallout will probably be relatively contained.”
