China's Debt Issue Unlikely To Hit Lehman Contagion Levels

The drumbeat of bad news about debt defaults in China is likely to continue as the government appears unlikely to step in, but comparisons with Lehman Brothers or Bear Stearns may be overdone.

"It will cause a lot of volatility in credit markets and the equities market. People will lose money," said Lim Say Boon, chief investment officer at DBS Private Bank.

But he noted, "It's not going to be a Lehman moment. You can't get a Lehman moment in a closed economy, where the capital account is closed, where the banks are government owned, where the borrowers are largely government owned."

China's debt problems have been a major concern for investors in recent years. The country's corporate debt hit a record $12 trillion at the end of last year, Standard & Poor's estimated, equivalent to 120 percent of gross domestic product.

The country saw its first bond default this month when Shanghai Chaori Solar Energy Science & Technology failed to make an 89 million yuan ($14.5 million) interest payment. Last year, Chaori avoided a bond default after a local government persuaded banks to defer claims for overdue loans and this allowed the firm to meet its bond interest payments.