Is It China’s Lehman Brothers Moment? Unveiling Evergrande Debt Crisis, Financial Risks, and Regulatory Implications

The ongoing Evergrande debt crisis has been widely dubbed as China’s Lehman Brothers moment as the Chinese corporate conglomerate failed to pay interest on its corporate debt worth £228bn. The case of Evergrande reflects the tightly intertwined connection of financial markets and the real economy as well as the fragile balance between financial stability and economic growth that policy-makers often find it difficult to strike. It also exposes the need to strengthen investor protection as we have observed the multifaceted nature of investors both on-shore and off-shore ranging from global banks and asset managers to vulnerable consumers who have spent their lifesaving in pre-sale purchases. The unique features of Evergrande crisis have provided us with a rare opportunity to explore the legal and regulatory challenges of a large-scale insolvency case involving multiple risks regarding the protection of domestic and offshore financial investors as well as the wider financial stability concern in China and beyond. This article analyses the legal and regulatory implications of the ongoing Evergrande debt crisis. Following this introduction, Part 2 explores the factors that have contributed to the eventual Evergrande debt crisis, such as China’s financial and housing policies that were aimed at curbing the country’s overheated property market. Part 3 considers the Chinese laws protecting domestic and offshore investors, including bondholders, in the event of default. Part 4 evaluates financial stability vulnerabilities that could arise from possible default by Evergrande and highly leveraged real estate sector and its domestic and global financial effects. Part 5 attempts to make some suggestions for policymakers and regulators. Part 6, finally, draws a tentative conclusion