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China’s Red Lines: A Failure of Central Planning

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Evergrande, China’s second-largest property developer, has said that it might not make interest payments on its bonds this week. Some are calling this China’s Lehman Brothers moment, and while that might be an exaggeration, a default could have serious repercussions throughout China’s, and perhaps the world’s, economy.

Evergrande is not a state-owned company, but its problems trace back to China’s socialist history and the Communist Party’s continuing control of the national economy. Nor are Evergrande’s problems unique: although it has debts of more than $300 billion, the other four of the country’s five-largest property developers have combined debts of more than $830 billion, and average of more than $200 billion each.

China’s Debt Crisis

Indeed, debt has driven the entire Chinese economy for some time. The national government has debts of $7 trillion, or less than half of the country’s gross national product(GNP). That sounds reasonable considering…

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