> How is a private developer [...]

> No private company in China is "too big to fail"

The biggest companies in China are state owned enterprises with large ownership positions by communist party insiders.

Not only are they not allowed to fail, their share price often isn't allowed to fall. They borrow money at interest rates below the rate of inflation and often never need to pay it back. This creates a zombie banking system that is periodically recapitalized by the government, and is also capitalized by households who receive interest rates below the rate of inflation on their deposits.

This then creates a shadow banking system where households, not wanting to leave their money in official banks, search for yield, for example investing in real estate or really anything that will at least keep up with inflation and at best offer a positive return. You have pig farmers stockpiling copper. This was why the bitcoin craze took off so much in China. Households are looking for anything, anything to preserve their wealth.

This explains the phenomena of Evergrande holdings -- it is not just a private developer that "overleveraged itself", it's the direct consequence of Chinese subsidies to State Owned Enterprises.

These SOE's then burn money on everything from building exact replicas of small Swiss villages to creating electric buses and absolutely everything in between. When you are paid to lose money and are politically connected, a whole host of investment opportunities becomes available. These SOEs will not be wound down. Evergrande, however, will be wound down, but only to be replaced by the next big construction conglomerate because Chinese households aren't going to leave their money in the bank.

However households, by lending to firms, cannot rid themselves of excess deposits - that requires a financial sector that faces market discipline on the liability side of its balance sheet, which Chinese banks do not. They do not face discipline on either the asset nor the liability side, as credit analysis is determined as much by political connections as any kind of business fundamental. You are going to have a hard time even getting proper books for these businesses, which is why we find out which ones fail only when they can't make a bond payment.

Therefore as long as these financing, ownership, and regulatory arrangements are in place, you are going to have the current crazy investment market where the state firms never go bankrupt but the private firms or those firms not well connected with party insiders are regularly going bankrupt.

This does not mean that capital is being allocated wisely, even if it does mean that your favorite infrastructure projects are more likely to get funded in China. But that's only because everyone's favorite infrastructure projects are more likely to get funded in China, from completely empty shopping malls, to empty apartment buildings, to empty airports, to bizarre tourist attractions, enormous 400 foot tall gold-covered statues of the buddha, it will all get funded in China, at taxpayer expense, and none of it will ever be marked to market. But from the bird's eye view, you see a nation where the private consumption share of GDP is now below 38%, the remaining 62% spent on enormous Buddhas, electric buses, vast shopping malls, and yes, empty apartment buildings constructed by Evergrande.