Evergrande Collapse Could Have a ‘Domino Effect’ on China’s Property Sector

Evergrande stock in Hong Kong

While the struggling developers are small in comparison to Evergrande, they account for around 10% to 15% of the whole market, according to Zeng. She cautioned that a financial collapse may have a "systemic" impact on other sections of the economy.

“It takes considerably more from a policy standpoint to stop it once it starts than it does to prevent it from happening,” she added.

“A controlled default or even a dramatic collapse of Evergrande would have little worldwide influence other than minor market instability on its own.”

— Capital Economics' Senior Global Economist, Simon MacAdam

On their own, the financial and social concerns connected with Evergrande are “reasonably manageable,” according to Zeng. She attributed this to the fragmentation of the Chinese property market.

“Despite Evergrande's scale - we all know it is China's largest developer, if not the world's largest – it still accounts for only 4%, and it now accounts for even less of the overall yearly sales market,” Zeng said. “The debt is well collateralized, particularly the onshore debt.”

China’s ‘Lehman moment’?

Some experts have warned that Evergrande's failure could be China's "Lehman moment," referring to Lehman Brothers' bankruptcy as a result of the subprime mortgage crisis, which caused the global financial crisis in 2008.

Senior global economist Simon MacAdam of Capital Economics, on the other hand, branded that narrative as "far off the mark."

“A controlled default or even a disorderly collapse of Evergrande on its own would have little global impact beyond some market turbulence,” MacAdam wrote in a note on Thursday. “Even if it were the first of many property developers to fail in China, we believe it would take a policy misstep for the country's economy to suffer a major slowdown.”

The company's Hong Kong-listed shares had fallen more than 80% year to date as of Friday's closure.