Question
Enter Evergrande and its growing list of missed bond payments. This behemoth, with $300bn in leverage, lies at the center of a property sector that
"Enter Evergrande and its growing list of missed bond payments. This behemoth, with $300bn in leverage, lies at the center of a property sector that represents 29 per cent of Chinese gross domestic product and is more than $5tn in debt. Some 41 per cent of the Chinese banking system's assets are associated with the property sector, and 78 per cent of the invested wealth of urban Chinese is in housing. Given the millions of creditors, shareholders, bondholders and (unbuilt) apartment owners, Evergrande has become a problem for Xi politically, economically and globally. So what is China now likely to do? Beijing's policy options are threefold: bankrupting Evergrande to send a message to the rest of the sector; propping it up because it is simply"too big to fail"; or facilitating an orderly distribution of assets." This example illustrates the idea that letting firms go bankrupt if they fail to give them incentives not to fail is:
Desirable before firms fail (ex ante), costly once they fail (ex post)
Costly before firms fail (ex ante), desirable once they fail (ex post)
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