DEJA VU ALL OVER AGAIN: To bail out or not to bail out: China’s Evergrande dilemma.

The Evergrande Group, one of China’s biggest real-estate developers, owes more than $300 billion to a number of lenders. Its interest liabilities are rising by an average of $28 million daily. On Thursday, Sep. 23, alone, the company needs to pay around $120 million as interest payments to bondholders.

If Evergrande begins to default, it will present the Chinese government with a dilemma. Should the company be bailed out, or should it be allowed to fail?

The markets are worried about the contagion effect that an Evergrande collapse will have on the economy; comparisons to the 2008 insolvency of Lehman Brothers, and the financial meltdown that ensued, have already been aired. There’s no good time for an economic crisis, but a particularly bad time for one is when the world is already in the grip of a pandemic.

If Evergrande does go into a bankruptcy court and has its debt restructured, its investors will all take significant haircuts on what they’re owed. But according to the so-called “seniority waterfall”—the pecking order in which creditors get paid—the Chinese government itself makes money first, since state-owned banks are among Evergrande’s biggest creditors.

Developing…