Furthermore, Lehman Brothers owns 3.46 percent of Ctrip.com International Ltd. and is one of the top 10 institutional investors of the NASDAQ-listed travel service provider. It is also one of the 10 largest shareholders of Baidu.com, the largest Chinese-language search engine. Public documents from Hong Kong Exchanges and Clearing Ltd. indicate that Lehman holds a considerable amount of shares of mainland companies, including Lenovo Group Ltd., China Telecom Corp. Ltd., China Netcom Group Corp., China Mobile Ltd., and China Unicom Ltd.

In the capital markets, Chinese investors who hold Lehman-related assets worry that the price of those assets will plunge if Lehman sells them as part of its Chapter 11 bankruptcy proceedings. Companies that file for Chapter 11 bankruptcy in the United States can continue to operate their business, but their creditors and the court must approve a plan for them to repay their debts.

Apart from the jitters in the capital market, companies in which Lehman Brothers has invested already have been beset by many problems. On the night when the news came that Lehman declared bankruptcy, Sunac China held an emergency high-level meeting to discuss how Lehman's collapse would affect the company. Managers were certain that Lehman Brothers would sell its stake in Sunac China. If Sunac did not repurchase its own shares from the investment bank, then it would have to bring in new investors.

"If it is a good-quality investor, Sunac will be very grateful," said Chen Hengliu, Vice President of Sunac. "But the problem is who will take Lehman's legacy in the company."

Some economists say companies such as Sunac China may not need to worry so much about the possible ramifications of Lehman's bankruptcy on their firms.

"As a matter of fact, the majority of Lehman Brothers' operations in China are running well," said He Liping, an economics professor at Beijing Normal University. "When Lehman starts to dispose its assets in China, I suggest domestic enterprises pay close attention and buy the assets if conditions permit."

On September 18, Hua An Fund said in a published notice on its website that it would guarantee the structured notes in its QDII funds-an indication that the fund management company might buy Lehman's assets in the mainland fund market.

Chinese companies that own Lehman assets all have said they were committed to buying the shares of their own companies from Lehman. He Liping believes they are doing this to save themselves from financial turmoil.

Limited impact

Analysts argue that Lehman's collapse will have a limited impact on China's banking industry.

Two days after the company declared bankruptcy, large commercial banks on the mainland issued public notices about their Lehman-related assets. By September 22, seven domestic A-share listed companies indicated that they hold a combined total of $722 million worth of bonds issued by Lehman, far less than the market had previously anticipated.

China Construction Bank (CCB) was reported to have the most Lehman bonds worth up to $191.4 million, among which $141.4 million were senior bonds and the rest subordinated bonds. The total amount accounts for 0.019 percent of CCB's total assets. Under the provisions of Chapter 11 bankruptcy, senior bondholders must be paid first, so that even if CCB suffers a loss, it would be limited to $50 million for the subordinated bonds.

The Industrial and Commercial Bank of China Ltd. (ICBC) is the second largest holder of Lehman-related bonds worth $151.8 million. According to ICBC's first half-year report, the bonds only account for 0.01 percent of its assets, 0.03 percent of ICBC's investment in bonds, and 1.6 percent of its $9.5-billion after-tax profit. ICBC said the senior bonds total $139 million.

The Bank of China Ltd. was also hit hard. Lehman and its subordinates owe $53.2 million in loans to the Bank of China. The bank also holds $75.62 million worth of Lehman-related bonds, which account for 0.01 percent of its total assets.

The Bank of Communications Ltd. said it had $70.02 million worth of bonds issued by Lehman and its subordinates, making up 0.02 percent of its assets.

The other three banks-China Merchants Bank Co. Ltd., China CITIC Bank Corp. Ltd. and Industrial Bank Co. Ltd.-largely have been unaffected by Lehman's collapse, because their holdings in the company amount to very little.

Li Yang, Director of the Finance Research Institute of the Chinese Academy of Social Sciences (CASS), said Chinese financial institutions are not suffering much from the U.S. financial crisis, because the Chinese market is detached from outside markets, and mainland institutions have just started to become involved in investing in international companies. The fact that China's currency cannot be converted freely into other currencies is another reason why companies here have minimized the impact, he said.

"China has successfully escaped from another major financial havoc since the 1997 Asian financial crisis," Li said.

Zhang Xiaojing, an economic researcher at CASS, said the biggest impact of Lehman Brothers' meltdown would be a psychological one, but have no major repercussions. Although some domestic financial institutions would be affected, the mainland's financial market system would remain intact and unshakable, he said. Zhang also said the financial crisis could provoke recessions in the United States and the rest of the world and would lead to shrinking international demand for Chinese products. But he added that the mainland economy would not be totally thrown off kilter.

Zhang Bin, an expert on international economics and politics at CASS, told Beijing Review that the market was exaggerating Lehman Brothers' bankruptcy. He said China's economy would not be greatly impacted by the bankruptcy, because domestic financial institutions do not hold many Lehman assets. Although negative market sentiment would be the biggest fallout from the crisis, China's industrial sectors would remain robust, he said.

Chinese Banks Holding Lehman Brothers' Bonds Bank of China China Construction Bank Industrial and Commercial Bank of China Bank of Communications China Merchants Bank China CITIC Bank Industrial Bank