CIBC economist says China’s Evergrande crisis more like Love It or List It episode than Lehman or Volcker moment

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      A lot of ink has been spilled regarding Evergrande, a deeply indebted property developer in China.

      Accounts say the company owes around or more than $300 billion, and it has been missing out on payments.

      There are concerns that an Evergrande collapse could trigger a global financial contagion.

      Andrew Grantham, an economist with CIBC, has waded in.

      The bank economist prepared a briefing paper about the issue for the week of September 27 to October 1.

      In the September 24 document, Grantham noted that some have speculated that the situation could be China’s “Lehman moment”.

      The phrase is a reference to the 2008 bankruptcy of Lehman Brothers, a global financial services company in the U.S., which led to a global financial crisis.

      Grantham also wrote that some are thinking that Evergrande may be China’s “Volcker moment”.

      To explain, the phrase refers to a policy decision by then U.S. Federal Reserve chair Paul Volcker to raise interest rates in order to contain inflation during the late 1970s.

      In the current situation, Grantham noted that such a Volcker moment in China will target excessive debt and housing speculation.

      For the CIBC economist, the Evergrande crisis is leading neither to a Lehman or Volcker moment.

      “While there’s no certaintly, our base case is that this plays out more like an episode of the property show ‘Love it or List it?’,” Grantham wrote.

      Grantham was referring to the TV reality show in which property owners decide whether sell or keep their homes.

      “Cracks in the foundation and a number of other problems are revealed,” Grantham explained.

      “But, when the dust settles, we will end up falling back in love with the Chinese economy again, even if we can’t get everything on our current wish list,” he continued.

      The CIBC economist noted that most of Evergrande’s debts are “limited to domestic creditors”.

      Moreover, the People’s Bank of China, which is the country’s central bank, is “willing to support financial markets as a whole”.

      Also, Beijing “might still have the tools needed to contain widespread contagion”.

      Grantham recalled that Chinese authorities have demonstrated in the past that the ability to “quell some excesses in the housing market without crippling the broader economy”.

      Grantham noted that in 2014, home sales and prices fell in China “following big gains in the prior year but, by official records at least, GDP growth only slowed from 7.8% to 7.4%”.

      Evergrande says on its website that it owns "more than 1,300 projects in more than 280 cities".