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US Fed Flags Potential Threat From China’s Evergrande

The central bank’s latest Financial Stability Report says the debt crisis in China’s property sector could strain financial markets and affect the US by posing risks to global economic growth


Wheat and garlic are being accepted as property down-payments as desperate China developers scramble to boost sales after a plunge in sales.
A Central China sales agent said the wheat promotion was aimed mainly at farmers in the region. It started on Monday and will end on July 10 for houses costing 600,000 to 900,000 yuan. File photo: Reuters.

 

Stresses in China’s real estate sector including from heavily-indebted Evergrande have the potential to impact the United States if they spread first to the Chinese financial system, the Federal Reserve said late on Monday.

Noting the concerns about high debt levels and inflated real estate values causing regulators in Beijing to take action, the central bank’s latest Financial Stability Report said the stresses could cause “a sudden correction of real estate prices” and impact the China’s financial system.

As one of China’s biggest property developers, fears around Evergrande’s debt mountain have battered investor sentiment and shaken the country’s mammoth real estate market, but the firm recently met an interest payment it was expected to miss.

“Given the size of China’s economy and financial system as well as its extensive trade linkages with the rest of the world, financial stresses in China could strain global financial markets through a deterioration of risk sentiment, pose risks to global economic growth, and affect the United States,” the report said.

The issue was one of several possible financial risks the Fed said had the potential to impact the United States.

Fed Chair Jerome Powell in September downplayed the situation noting the lack of direct US exposure, but said it could hit global consumer confidence.

 

• AFP with additional editing by Jim Pollard

 

ALSO SEE:

China State Council Officials Met Property Developers, Banks

Loan Crackdown Pain Spreads Beyond China Property Sector

 

 

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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