The October update of the Global Financial Stability Report, published on Tuesday, pointed out the coronavirus pandemic impact so far has been limited to financially weak property developers and lower-rated firms.
"I think the Chinese authorities have fiscal power and space, as well as legal and institutional means, to tackle the problem,"
Apart from
The report underlined the "challenging trade-offs" in the extent of support to affected financial entities and sectors and the timing of the intervention.
"The broader the support measures, especially if accompanied by an actual or perceived relaxation of the broader effort to de-lever the financial system over time, the greater the risk of financial fragilities reemerging in the future," said the report.
It said a well communicated and prompt intervention would likely minimize the risk of contagion but at the cost of reinforcing a perception of individual firms being too big to fail.
"Postponing support to the financial system to instill market discipline may, however, require broader measures to manage financial stress."
The
"In the short term, the tools are available to contain and manage potential financial stress and lessen any adverse impact on the economy.
Despite its confidence in Chinese capabilities, the
For potential domestic financial effects, the
"However, should stress spread widely to the broader property development sector, the exposures of the financial system would be meaningfully larger."
It said several financial institutions, including banks, trust companies, and other shadow banking entities, were involved directly through loans, bonds, and other credit instruments, as well as indirectly via guarantees and contingent liabilities.
The debt had accumulated "often through opaque and difficult-to-quantify channels that create a high degree of interconnectedness within the financial system," said the report.
The
It said knock-on effects on real estate firms could adversely impact growth given sizable liabilities to various counterparts.
A sustained fall in house prices could weigh on consumer confidence and spending.
The
The world body noted that a slowdown in economic growth and a tightening in financial conditions in
© 2021 EFE News Services (U.S.) Inc., source