China faces challenges from ‘mismanagement’ at certain firms, says PBOC head
Governor of Folks’s Financial institution of China (PBOC) Yi Gang attends a information convention on China’s financial growth forward of the seventieth anniversary of its founding, in Beijing, China September 24, 2019. REUTERS/Florence Lo/File Picture
Oct 17 (Reuters) – China’s economic system is “doing nicely”, however faces challenges similar to default dangers for sure companies resulting from “mismanagement”, the Folks’s Financial institution of China Governor Yi Gang stated on Sunday.
Issues have grown in current weeks over the doable collapse of property developer China Evergrande Group , which has greater than $300 billion in liabilities and has missed three rounds of curiosity funds on its greenback bonds.
As the corporate wrestles with its debt, worries a few doable spillover of credit score danger from China’s property sector into the broader economic system have intensified.
Yi Gang stated default dangers for some companies and operational difficulties of small and mid-sized banks are among the many challenges for China’s economic system, and that authorities are holding a detailed eye “so they don’t turn into systematic dangers”.
Whereas development has moderated resulting from a sporadic rise in coronavirus infections, China’s economic system is predicted to develop 8% this yr, Yi stated at an internet assembly of the Group of 30 Worldwide Banking Seminar, which coincides with the annual conferences of the Worldwide Financial Fund and World Financial institution.
Authorities will first attempt to stop issues at Evergrande from spreading to different actual property corporations to keep away from a broader systematic danger, he added.
The rumbling disaster at Evergrande and different main homebuilders drove debt market danger premiums on weaker Chinese language companies to a report excessive final week and triggered a recent spherical of credit standing downgrades.
“The curiosity of collectors and shareholders will likely be absolutely revered strictly in accordance to regulation,” Yi stated. “The regulation has clearly indicated the seniority of liabilities.”
Authorities will give the best precedence to the safety of customers and residential consumers, whereas respecting the rights of collectors and shareholders, he stated.
The PBOC was taking numerous steps to fend off monetary dangers, similar to replenishing capital for small and midsize banks, Yi Gang stated.
The world’s second-largest economic system has staged a formidable rebound from the pandemic however there are indicators the restoration is dropping steam.
“Financial development has been slowed down somewhat bit, however the trajectory of financial restoration stays unchanged,” he stated.
On the event of digital yuan, Yi Gang stated the PBOC will concentrate on its home and retail use as cross-border and worldwide utilization was “somewhat bit difficult” resulting from necessities over points similar to cash laundering.
“We are going to carefully cooperate with the central financial institution group,” he stated, including that utilizing digital yuan as a device to advertise China’s Belt and Highway initiative was “not our precedence at this level”.
Reporting by Leika Kihara in Tokyo; Modifying by Jan Harvey
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