China Beige Book COO states that Evergrande's liquidation crisis will not be China's "Lehman moment."

• Shehzad Qazi of China Beige Book stated that China's non-commercial financial system prevents a "Lehman moment" because the government controls all intermediaries in the economy and can force them to continue lending, supplying, and borrowing.
• Beijing's more aggressive stance to contain risk means that even if China recognizes the Hong Kong court order, the fallout will likely be relatively contained.

This week, a liquidation order for a property giant deepened concerns about China's struggling real estate sector. However, analysts believe the spillover will be contained, with one stating it could be "good news."

China Beige Book International's chief operating officer, Shehzad Qazi, stated on Tuesday that China will now assume the liabilities of any large company failures in the property sector, such as Evergrande, in order to prevent wider contagion.

A Hong Kong court ordered the liquidation of an embattled property developer on Monday because it couldn't agree on a restructuring deal with creditors.

China's non-commercial financial system ensures that there won't be a 'Lehman moment,' as the government effectively controls all of the intermediaries in the economy and can force them to continue to lend, supply, borrow, etc. This means that there will be no massive credit event, as Qazi told CNBC.

The collapse of Lehman Brothers in 2008 resulted in a financial derivatives crash, which ultimately led to a global recession.

On Tuesday, Qazi stated on CNBC's "Street Signs Asia" that if China's fiscal stimulus measures were successful and substantial, they could improve sentiment and drive economic growth, which he predicted would be slower this year compared to the previous one.

What is the nature of fiscal stimulus in stabilizing the property market? Since monetary stimulus has stopped working, it's not effective in China.

In 2023, China's GDP grew by 5.2%, compared to a 3% increase in 2022.

With over $300 billion in liabilities, China Evergrande, once a prominent property developer in the country, now holds the title of the world's most indebted company.

In court on Monday, Hong Kong Justice Linda Chan reportedly stated that despite months of delays, Evergrande was still unable to make concrete plans for restructuring.

Despite its shares being suspended by the Hong Kong Stock Exchange after a 20% plunge on Monday, fears of contagion from Evergrande's likely downfall were relatively contained.

Colossal piles of debt

The property sector is a crucial part of China's economy, but the significant debt on the balance sheets of major developers has resulted in severe defaults.

The company, also one of the country's largest developers, has been struggling to pay off its own debt and reportedly said last month that it may avoid a default on its yuan-denominated bonds after being deemed to have defaulted on its dollar-denominated debt.

"According to Charlene Chu, a senior analyst at Autonomous Research, the majority of defaults have been offshore, and cross default clauses typically do not require these offshore defaults to be recognized onshore."

Chu stated that despite the defaults in China's property market, there has been no significant impact on domestic financial instability.

Whether China will acknowledge the Hong Kong court order for Evergrande's liquidation is uncertain, given that most of the company's assets are located on the mainland.

Beijing's more aggressive stance to contain risk and potential political considerations mean that even if a court in mainland China recognizes the Hong Kong court order, the fallout will probably be relatively contained.

The title of Shehzad Qazi has been accurately reflected in the headline of this story.