China can ‘contain’ economic, financial risks posed by Evergrande crisis, central bank chief says
- People’s Bank of China (PBOC) governor Yi Gang admits the struggles of China Evergrande Group ‘casts a little bit of concern’
- Fears about a fast-spreading contagion in the US$5 trillion property sector have sparked a sell off of bonds from Chinese developers
The property developer’s trouble “casts a little bit of concern,” Yi said at a virtual meeting of the Group of 30 on Sunday.
“Overall, we can contain the Evergrande risk.”
Contagion fears intensified over the past two weeks after a surprise default by Fantasia Holdings Group and a warning from Sinic Holdings Group that its default was imminent.
On Friday, PBOC official Zou Lan said that authorities and local governments are resolving the situation based on “market-oriented and rule-of-law principles.”
Yi said Evergrande’s liabilities were spread across “hundreds” of entities in the financial system so that there is “not much concentration”.
“The rights and interests of creditors and shareholders will be fully respected in strict accordance with the law. And also the law has clearly indicated the seniority of those liabilities,” he said.
Beijing is also trying to protect consumers and homebuyers, he said.
“I think we can prevent systemic risk,” he said, by keeping risk contained.
Without mentioning Evergrande, Yi said earlier that higher default risk for some firms due to “mismanagement and breakneck expansion” was slowing China’s economy.
Yi predicted producer price inflation will start slowing by the end of this year after accelerating at the fastest pace in almost 26 years in September.
The producer price index will “remain high for a few months, before the upward pressure wanes at the end of this year,” Yi said. “Consumer price index growth remains moderate.”
Yi said the advance was “largely explained” by rising raw material costs.
Yi said the coronavirus pandemic is “under control” in China, and that the economy is returning to “business as usual,” albeit with its growth easing lately.
“The growth momentum has moderated somewhat,” Yi said. “Economic growth has been slowed down a little, but the trajectory of the economic recovery remains unchanged.
Yi pledged that the central bank would continue to follow “prudent” policy.