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Evergrande ‘Controlled Explosion’ May Level China’s Growth Model

Apartment buildings at China Evergrande Group's Life in Venice real estate and tourism development in Qidong, China, on Sept. 21. Evergrande’s debt crisis has fueled concerns this week about broader contagion.

Apartment buildings at China Evergrande Group's Life in Venice real estate and tourism development in Qidong, China, on Sept. 21. Evergrande’s debt crisis has fueled concerns this week about broader contagion.

Photographer: Bloomberg

As the world’s most indebted real estate company sinks closer to collapse, the optimistic take among global investors when it comes to China’s Evergrande Group is that this is a “controlled explosion” rather than a “Lehman moment.”

But didn’t Beijing itself light the fuse? The “red lines” on corporate debt the government issued last year all but guaranteed Evergrande’s demise. Still, the bulls say, financial authorities have had plenty of practice at this kind of demolition job. Earlier this year, they placed into bankruptcy administration the HNA Group, one of China’s most acquisitive conglomerates, and on Friday the company announced police had detained its chairman and chief executive.