As fears of default intensify, China tries to appease Evergrande

Beijing (Associated Press)-The People’s Bank of China on Monday expanded the money supply for loans Beijing Try to assure the public and investors that the economy can be protected if the huge $310 billion debt of a troubled real estate developer collapses.

Evergrande GroupEfforts to convert assets into cash have raised concerns that defaults may cool the Chinese loan market and trigger a global shock.Economists say that the ruling Communist Party can prevent the credit crunch, but hopes to bail out to avoid sending false signals Evergrande In a campaign to force companies to reduce debt Beijing Worries are dangerously high.

The People’s Bank of China stated that by reducing the amount of reserves banks must hold, it has issued 1.2 trillion yuan (190 billion US dollars) for loans. Beijing Expected to show support for loans later Evergrande It warned on Friday night that it might run out of cash, but the central bank did not mention the company, which earlier accused the company of reckless borrowing.

“The company must be punished,” said He Fan, an economist at Peking University’s HSBC Business School.

Since then, developers have been racing to repay debt Beijing Last year, they lowered their restrictions on the use of borrowed money. Weak real estate activity in the last quarter caused economic growth to be unexpectedly lower than 4.9% in the same period last year.

The People’s Bank of China stated that it would “support the development of the real economy.” It stated that the RRR cut has not changed the “prudent monetary policy.”

if Evergrande Defaults, Beijing ING economist Iris Pang said that if developers sell apartments to raise cash through “sales”, they may launch a dual-track strategy, which is to inject capital into the credit market while trying to prevent a collapse in house prices.

“If this happens, it will be more like a semi-controlled market,” Pang said.

Chinese leaders have dealt with corporate debt crises, but the largest Evergrande.

The Hainan Provincial Government confiscated the airline operator HNA Group in 2020 after accumulating US$61 billion in debt during the global acquisition spree. The company presented a plan in September under which creditors will receive approximately 40% of their debts.

Since 2018, reducing financial risks has been the top priority of Chinese leaders. In 2014, they allowed the first bond default since the Communist Party came to power in 1949. Defaults are gradually allowed to increase in order to force borrowers and investors to be more self-disciplined.

Nevertheless, the total debt of enterprises, governments, and households has risen from 270% of annual economic output in 2018 to nearly 300% last year, which is unusually high for middle-income countries.

Beijing Compared to last year’s scale, the amount of loans allowed to real estate developers has decreased. This prevents many people from issuing new bonds when they are due to repay the bonds.

Fantasia Holdings Group stated on October 5 that it failed to pay bondholders US$205.7 million. Kaisa Group Holdings Co., Ltd. warned last week that it may not be able to repay the $400 million bond due on Tuesday.

Economic growth may decline further, but “the government believes that economic structural changes are more important,” said He of Peking University.

Government EvergrandeGuangdong Province said it will send a risk manager to the company’s headquarters in the southern city of Shenzhen. Other provinces and major cities have established “risk mitigation teams.”

“There is no good news,” the Economic Observer quoted members of the risk team as saying. He said that what the public sees is “just the tip of the iceberg” EvergrandeThe problem.

These problems are due to EvergrandeThe central bank said in an unusually harsh statement on Friday that it was “mismanagement and blind expansion.”

Regulators are also working to eliminate the hidden real estate investment risks of insurance companies and banks.

According to the business news magazine Caixin, insurance companies were required to disclose investment details in November. It said the regulator listed possible “illegal financing” but did not provide details.

Economists say Evergrande It will not be the “Lehman Moment”, referring to the collapse of Lehman Brothers, the Wall Street Bank in 2008, which was the symbolic beginning of the global crisis.

Unlike banks and securities companies whose assets are mainly claims on other financial institutions, EvergrandeIts 2.3 trillion yuan (350 billion U.S. dollars) investment portfolio includes land, semi-built apartments and company shares, all of which have market prices.

this means EvergrandeThe banking regulator said in a statement that the cash crunch “will not have a negative impact” on banks or insurance companies.

But land is called non-current assets, or assets that take time to sell.Sold a family for $2.6 billion Evergrande The subsidiary went bankrupt in October.

Under pressure from Beijing In order to cover his own pockets, billionaire chairman Xu Jiayin sold $344 million Evergrande November stocks.

According to Caixin.com, Xu also borrowed US$105 million to use two houses in Tony Blacklink district in Hong Kong as collateral.

Evergrande It said on Friday that it has received a request to repay $260 million in debt. Other obligations include payment of interest on bonds of US$255 million due on December 28.

These are a relatively small part of its total borrowings, but Evergrande It warned on Friday that missed payments could trigger demands for immediate repayment of other debts. This may push the total amount of receivables to billions of dollars.

Evergrande By paying the bondholders on the last day of the grace period, the default was avoided before the default was announced. It is unclear where the money came from.

At the same time, other real estate companies have been approved to issue new bonds, which may be to reassure the public that the industry is healthy.

According to the China Securities Journal, the total amount of bonds sold by real estate companies in November increased by 84% from the previous month to RMB 47.1 billion (US$7.4 billion).

According to the “Securities Daily” report, in order to support housing sales, state-owned banks have accelerated the borrowing process for home buyers and reduced costs.

Copyright © 2021 The Washington Times, LLC.



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