Evergrande Group’s struggle to comply with official pressure to reduce debt has fueled anxiety that a possible default might trigger a financial crisis. Economists say global markets are unlikely to be affected but banks and bondholders might suffer because
After reviewing Evergrande’s finances, “there is no guarantee that the Group will have sufficient funds to continue to perform its financial obligations,” the company said in a statement through the
Shortly after that, regulators tried to soothe investor fears by issuing statements saying China’s financial system was strong and that default rates are low. They said most developers are financially healthy and that
“The spillover impact of the group’s risk events on the stable operation of the capital market is controllable,” the
The ruling
Despite that, total corporate, government and household debt rose from the equivalent of 270% of annual economic output in 2018 to nearly 300% last year, unusually high for a middle-income country. Economists say a financial crisis is unlikely but debt could drag on economic growth.
Evergrande’s statement Friday said the company faces a demand to fulfill a
The company has missed deadlines to pay interest on some bonds but made payments before a grace period ended and was declared in default.
The
Evergrande’s struggle has prompted warnings that a financial squeeze on real estate — an industry that propelled China’s explosive 1998-2008 economic boom — could lead to trouble for banks and an abrupt and politically dangerous collapse in growth.
Also Friday, another developer,
A midsize developer,
Hundreds of smaller Chinese developers have gone bankrupt since regulators began tightening control over the industry’s finances in 2017.
The slowdown in construction helped to depress China’s economic growth an unexpectedly low 4.9% over a year earlier in the three months ending in September. Forecasters expect growth to decelerate further if the financing curbs stay in place.
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