Michael Schuman writes:

Evergrande Group, one of China’s largest property developers, is tottering on the brink of bankruptcy. Its founder, Hui Ka Yan, is scrounging to find the cash to meet payments on the $300 billion his company owes. Beijing has warned local officials to prepare for possible fallout if the gargantuan firm collapses. Around the world, financial analysts are wondering if Evergrande is China’s “Lehman moment,” the starting gun for a destructive wave of defaults that could take down the nation’s banks and set back the country’s—and the world’s—already shaky recovery from the pandemic-induced economic downturn.

All of that is reason enough to care about what’s happening at this otherwise little-known Shenzhen-based real-estate company. But Evergrande and the problems it faces tell an even more important and fundamental story about China and its future. The crisis exposes the deep, dangerous, and often unrecognized weaknesses in the Chinese economy that could derail its advance and, with it, Beijing’s quest to challenge American primacy on the world stage.

That may seem like far too much to hoist onto the shoulders of a troubled company that builds apartments. Officials in Washington, and Americans more generally, tend to think that China’s economic progress rests on 5G mobile technology and artificial intelligence. But in reality, Evergrande is just as core to the future global balance of power, because it represents just how broken China’s economic model really is.

This isn’t nearly as controversial a statement as it sounds. Chinese policy makers have acknowledged the need to recalibrate the economy’s engines for more than a decade. Their system generates high rates of growth, but also large amounts of waste, inefficiency, debt, and financial losses. And, in the process, it creates Evergrandes—companies that know no limits, gorge on easy money, and build their way into financial ruin. [Continue reading…]