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Anjani Trivedi and Shuli Ren

China Is Getting Closer to Its Lehman Moment

Seizing the country’s fourth-largest insurer is an indicator of contagion hitting a system made more fragile by Covid-19.

Risk of a different contagion.

Risk of a different contagion.

Photographer: Di Yin/Getty

Wall Street’s movers and shakers are largely seen as part of the solution to the coronavirus-ravaged economy. Chastened by the collapse of Lehman Brothers and the great recession over a decade ago, they were forced to scale back businesses considered risky and clean up their balance sheets. In this crisis, they’re no longer the problem.

The same can’t be said of China. Beijing has made martyrs of its banks and insurers, asking them to lend to the needy, forgo profits and support the animal spirits of its trillion-dollar capital markets. But, along with brokers, they’re still a troubled bunch, far from being sturdy pillars of the financial system. If anything, Covid-19 has exacerbated credit risks. China’s Lehman moment, when isolated events cross the line into systemic effects, is just lurking around the corner.

Last Friday, regulators took control of nine troubled firms, controlled by fallen billionaire Xiao Jianhua’s empire under Tomorrow Holding Co., totaling more than 1.2 trillion yuan ($171.5 billion) in total assets. It's one of the largest seizures in China’s recent history.  Xiao was taken from Hong Kong's Four Seasons hotel by Chinese authorities three years ago and has disappeared from the public eye since.