China's Bear Stearns Meltdown to be Slow-Mo

Listening to the short sellers, one could be forgiven for expecting the imminent toppling of China’s once-envied economy.

Stock traders have doubled bearish bets against some of China’s biggest property developers, while a smaller one, Zhejiang Xingrun Real Estate, was unable to pay creditors that included more than 15 banks and collapsed just days ago. That came less than two weeks after Shanghai Chaori Solar (002506:CH) became the country’s first company ever to default on an onshore bond—an episode dubbed China’s “Bear Stearns Moment.”

Despite signs of impending doom, expect a slow burn, rather than sudden meltdown. Yes, China’s economy has become way too leveraged, with non-financial corporate debt amounting to $12 trillion, or 120 percent of gross domestic product, as of the end of last year, according to Standard & Poor’s (MHFI). Still, Beijing has the financial muscle to stop any big defaults by the companies it cares about, and it will make sure that those chosen ones—usually state-owned enterprises—survive to see many further days.

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