Not too big to fail?
China Evergrande Group is a real estate developer in China that has been in the headlines for the last few weeks, and here is the best explainer I could find to break it down, from Matt Levine at Bloomberg.
Will China allow it to fail, or will they jump in at the last minute to save them?
But if the ordinary process to answer the first question ends up with an answer like “sympathetic ordinary people lose their life savings,” or “politically connected people lose everything,” or “the banking system loses a lot of money and becomes undercapitalized,” or for that matter “housing prices collapse,” then that is a good reason for the government to step in. And if the government is stepping in, there is no particular reason to assume that the ordinary claims of seniority will apply. If the government steps in to rescue small investors or the banking system or housing prices, that doesn’t necessarily mean it will also rescue foreign hedge funds.