Shanghai (China), Oct. 13 (EFE). – The Chinese authorities “have tools to intervene” if the crisis of debt-laden real estate giant Evergrande (HK 🙂 and its repercussions on the sector in the Asian country worsens. Report from the International Monetary Fund.
The October update of the International Monetary Fund’s Global Financial Stability Report, published on Tuesday, indicates that for now, contagion to other Chinese real estate firms has been limited to developers who were already financially weak and already in debt. Weak grades.
“Our assessment is that the Chinese authorities have the financial strength and space, as well as the legal and institutional means, to address the problem,” Tobias Adrian, director of the IMF’s Capital Markets and Monetary Department, said in a virtual press conference.
away from Evergrande – which has more than 300,000 million in debt and this appears to be heading towards default on some of its “offshore” bonds – in recent weeks, some smaller promoters such as Sinic, Xinyuan or Fantasia have revealed that they have liquidity problems to deal with their obligations.
The document stresses the “complex contradictions” derived from Beijing’s potential intervention, in that greater support for companies at risk, “particularly if accompanied by real or perceived easing of financial deregulation measures,” would increase the risk of financial vulnerabilities once again emerging. others in the future.
“Immediate and clearly announced” intervention would reduce the risk of contagion but reinforce the perception that there are “too big to fail” companies, while postponing financial system support to “enforce discipline” in the markets would mean taking far-reaching action. In the future to ease the financial pressure.
In any case, the fund recommends China “tighten” legal frameworks for corporate restructuring and long-term insolvency.
Local and global repercussions
Despite its confidence in Beijing’s capabilities, the body warns of the potential for broader financial problems to emerge, with repercussions for the Chinese economy and, in extreme cases, global capital markets.
In terms of domestic impact, the IMF states that Chinese banks’ exposure to the Evergrande is limited – more in the case of smaller entities with more fragile capital positions – but that it will become “much larger” in the event that the conglomerate translates into a general crisis in the real estate sector.
Similarly, the file warns that a portion of this debt has been accumulated through “opaque and difficult to quantify channels” that create a “high level of interdependence” with the financial system.
The domino effect in the real estate sector implies a “negative effect” on economic growth, which also affects regional and local governments, which receive a significant part of their income from the sale of land; If it is this fall, they may have to scale back their public investments, bolstering concerns about supporting state entities, particularly in areas with a sensitive fiscal situation.
The IMF is also warning of the burden of spending and consumer confidence which could mean a “sustainable decline” in real estate prices, as real estate has become a popular investment vehicle in China.
Externally, the report notes that the potential for a slowdown in economic growth and a tightening of financial conditions in China could have an “indirect impact” on the rest of the world, in part due to the increasing exposure of international investors to Chinese finance. assets.
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