Michael Pettis on Evergrande and "too big to fail" in China

Borrowing for large Chinese companies like Evergrande has never been a problem in the past.  It was widely believed that they would ultimately always honor their obligations.  It was expected that local governments and regulators would always intervene at the last minute to restructure liabilities and, if necessary, recapitalize the borrower. 

As a result, there was very little differentiation in lending in the credit markets.  Banks, insurance groups and fund companies fought over issuing loans to large, systemically important borrowers. 

Nobody worried about possible losses.  In other words, the entire credit market was marked by moral hazard. 

~ Michael Pettis, "The significance of the Evergrande crisis for China," The Market/NZZ, September 21, 2021