Chinese central banker says market can handle developer debt
BEIJING (AP) – Financial markets may face the impact of a Chinese real estate developer struggling to avoid default on $ 310 billion in debt, the central bank governor said on Thursday in a new effort to assure the public that the economy can be protected from fallout.
Yi Gang’s video comments at a seminar in Hong Kong added to indications that Beijing has no plans to bail out Evergrande Group. Fears of a default have rocked financial markets, but economists say the ruling Communist Party wants to avoid sending the wrong signal at a time when it tries to force companies to reduce the debt burden.
“The short-term risks of individual real estate companies will not affect the normal funding function of the market in the medium to long term,” Yi said, according to Chinese media.
âEvergrande risk is a market event that will be properly managed in accordance with the principles and the law of the market,â said Yi. The interests of investors “will be protected in accordance with the law”.
Default is almost certain after Evergrande, the world’s most indebted real estate company, warned on Friday it could run out of cash. The company claims to have 2.3 trillion yuan ($ 350 billion) in assets, but struggles to sell them fast enough to pay off debts.
Beijing can keep credit markets functioning if Evergrande defaults, and local authorities can step up to contain the turmoil in real estate markets, economists say. The central bank on Monday released 1,200 billion yuan ($ 190 billion) in bank reserves for additional loans.
Evergrande and its creditors have yet to confirm reports the company failed to make the payment due this week on a US dollar-denominated bond sold overseas.
Evergrande, headquartered in the southern city of Shenzhen, is the biggest company caught up in a campaign launched by Beijing last year to force developers to reduce growing debt that is seen as a threat to economic stability. Smaller developers have gone bankrupt, defaulted on their debts, or warned they could default.
The total debt of Chinese companies, governments and households reached around 300% of annual economic output, up from 270% in 2018, which is unusually high for a middle-income country.
Another developer, Kaisa Group Holdings Ltd., has warned it may default on a $ 400 million bond due Tuesday. The company has yet to confirm reports that it missed the payment, but Fitch Ratings lowered Kaisa’s credit rating to “restricted default” on Thursday pending confirmation.
The slowdown in real estate sales and construction caused by the debt campaign helped depress China’s economic growth to a surprisingly low 4.9% from a year earlier in the three months of this year. ending in September. Forecasters expect growth to slow further if funding restrictions remain in place.