Macroscope | Despite Evergrande’s woes, investors are worrying more about US policy missteps than China’s

China has often been dubbed a Lehman-in-the-making, a reference to the spectacular collapse of Lehman Brothers, which precipitated the 2008 global financial crisis. Chinese policymakers themselves have warned of the risk of a “Minsky moment”, the onset of a disorderly fall in asset prices brought on by an excessive build-up of leverage.

The deepening liquidity crisis at China Evergrande Group, the country’s second-largest property developer and the world’s most indebted, has rekindled fears of a loss of confidence in China’s economy and markets.

Investors’ concerns about the world’s second-largest economy have been amplified by Beijing’s broadening regulatory crackdown and a sharper slowdown in the past several months. Since early February, the MSCI China Index, a gauge of stocks listed on the mainland and in Hong Kong, has plunged about 30 per cent, compared with a 5 per cent rise for global equities.

While there is a strong consensus that Beijing has a range of policy levers at its disposal to ensure that Evergrande’s woes do not result in a chaotic collapse into bankruptcy, there is much less certainty over how far the government is willing to go to take the heat out of the housing market.