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China Can Address Evergrande Crisis But Risks Remain: IMF

China has the ability to address the Evergrande crisis, although there is a risk of the developer’s pain escalating to cause broader financial stress, the Fund says

The IMF report said the Evergrande contagion so far has been limited to other financially weak property developers and lower-rated firms. Photo: Reuters

 

China has the ability to address the issues linked to China Evergrande Group’s indebtedness, although there is a risk of the property developer’s pain escalating to cause broader financial stress, the IMF said in a report and comments released on Tuesday.

Evergrande, with more than $300 billion in liabilities, has concerned investors globally after it missed its third round of bond payments in three weeks, intensifying market fears over contagion involving other property developers as a wall of debt payment obligations come due in the near-term. Debt-saddled Chinese property firms took heavy fire in bond markets on Tuesday.

“I think the authorities have the means to address the situation,” said Tobias Adrian, the IMF’s Director of Monetary and Capital Markets Department, in an interview timed with the release of the IMF’s Global Financial Stability Report on Tuesday.

“They have the fiscal capacity and they have the legal and institutional tools to address this issue. So one thing that would have to go wrong is that communication is not very clear and the necessary steps are not being taken.”

But Adrian said that “at the moment contagion is contained.”

Financially weak firms

The IMF’s report said that contagion so far has been limited to other financially weak property developers and lower-rated firms. If the situation were to “escalate, there is a risk that broader financial stress may emerge, with implications for both the Chinese economy and financial sector as well as global capital markets at the extreme.”

Beijing has prodded government-owned firms and state-backed property developers to purchase some of Evergrande’s assets, people with knowledge of the matter previously said.

“As long as authorities have a clear plan, I would expect the situation gets resolved,” Adrian said.

In the IMF’s Global Financial Stability Report, the organization more broadly urged policymakers to “act decisively” and target continued economic support tailored to their countries’ needs.

 

  • Reuters with additional editing by Jim Pollard

 

Read more:

Evergrande Creditors Fear Imminent Default as Fears Grow

If Evergrande Falls, Who Will be Next?

 

 

Jim Pollard

Jim Pollard is an Australian journalist based in Thailand since 1999. He worked for News Ltd papers in Sydney, Perth, London and Melbourne before travelling through SE Asia in the late 90s. He was a senior editor at The Nation for 17+ years and has a family in Bangkok.

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