October 19, 2021

Evergrande’s crisis | The Economist

CHINA’S VAST and opaque financial system has long posed a threat to its economy and the world. The agonies of Evergrande, a property firm with towering debts, are a reminder of how hard it is to manage the risks. The government is attempting to impose an orderly default on some of its creditors but faces the risk of contagion. The episode also highlights a bigger question of whether President Xi Jinping’s crackdown on business will make it even harder to create a reformed financial system that is safer, more open and more efficient.

Part of what makes China’s financial industry daunting is its size. Banking assets have ballooned to about $50trn and they sit alongside a large, Byzantine system of shadow finance. Total credit extended to firms and households has soared from 178% of GDP a decade ago to 287% today. The industry suffers from opacity, a lack of market…

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