China Evergrande Group’s recent tumble is a wake-up call. Beijing’s latest policy shifts show it is confident that killing a dragon or two won’t cause a wildfire.
Evergrande, one of the country’s largest developers with 2.3 trillion yuan ($337 billion) in assets, faced a crisis of confidence late last week. A dramatic selloff in its stocks and bonds followed reports the company had sent a letter to the Guangdong government warning of a potential cash crunch if it couldn’t carry out a backdoor listing in Shenzhen by January. The company said in a filing that the document was “fabricated.”
Nonetheless, investors were unnerved. The document, fake or not, struck the right note. Just over a month ago, Beijing proposed a “three red lines” approach for major developers. Those exceeding all three leverage metrics monitored by regulators are forbidden from borrowing more. Evergrande has solidly crossed that threshold.
In that “fabricated”