Evergrande is not Lehman




We started the week with some mess in the markets due to the financial difficulties of a Chinese residential developer in which there is probably more noise than nuts in terms of systemic risk. Taken to the extreme, the problem is probably that we insist, we continue to insist, in analyzing everything Chinese with Western standards and if the many comings and goings of recent years have shown us, it is that China works in a different way, its dynamics they escape us and of course we do not finish understanding it.

In this specific case, Evergrande's problems have been known for a long time - it was the worst of the class by far - and they have been accentuated in recent years.

recent months due to the impact of the Covid and the measures that the Chinese authorities have been taking lately to try to cool the economy. It is important to highlight this last point. China, unlike the rest of the countries, has not pressed the accelerator lately but is betting on more moderate growth to try to tackle the growing social differences, which is the real risk for the Chinese model.

Logically the company numbers are dizzy. Like everything Chinese, they do not seem out of this world and cannot be analyzed with the usual patterns. Now, what should not be forgotten is that a disorderly outcome does not interest anyone, least of all the Chinese authorities.

In China, moreover, moral hazard is not the norm and there is no problem in rescuing whoever touches it if it avoids a greater evil. The authorities will intervene when they deem it appropriate and under the conditions they deem. We must not forget who we are dealing with. What can certainly be ruled out is that the eventual bankruptcy of a Chinese company will put its financial system or its emerging capital market in check. They have not allowed it so far and they will not allow it in the future.

They will solve it as things are solved in that part of the world without having a major impact on its economy and of course on the rest. It doesn't matter what we like. It is so. And what is certainly not an event that is going to put the world financial system in check as was the case of Lehman, no matter how much it may bother some.

A week of trouble in the stock markets due to the problems of a Chinese residential developer. The apocalyptic headlines are back. Easy shortcuts that pull from fear, which is something that catches on very well in the markets.

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