In the absence of a declared bailout or workout for Evergrande, contagion is spreading throughout China’s property sector, particularly in the offshore bond market. Investors are focused on China’s objectives in controlling speculation in the property sector—are Chinese leaders still committed to maintaining economic growth, or have political priorities changed? But the next steps in the crisis will be determined by China’s methods in communicating with homebuyers, investors, and financial markets—the means rather than the ends. The critical question is whether or not China’s politics are constraining conventional economic policy-making, and preventing a counter-cyclical policy response that had successfully managed similar episodes of financial stress in the past. Markets are now anxiously awaiting the answer.
