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China Faces Challenges Due to Mismanagement

The Chinese economy is “doing well,” but it confronts obstacles, including default risks for some businesses owing to “mismanagement,” according to People’s Bank of China Governor Yi Gang. Concerns have increased in recent weeks over China Evergrande Group, a property developer with more than $300 billion in liabilities and three rounds of interest payments on its dollar notes missing.

Concerns about a possible credit risk spillover from China property sector onto the broader economy have grown as the firm struggles with its debt. Default risks for some businesses and operational issues of small and mid-sized banks are among China economic concerns, according to Yi Gang, who added that authorities are keeping a careful check on them So they don’t become systemic hazards.

China economy is anticipated to grow 8% this year, despite occasional increases in coronavirus infections, Yi stated during an online meeting of the Group of 30 International Banking Seminar, which coincides with the annual meetings of the International Monetary Fund and the World Bank. He added that to avoid a larger systemic danger, authorities would first try to prevent issues at Evergrande from spreading to other real estate businesses.

Last week, a new round of credit rating downgrades was sparked by the rumbling crisis at Evergrande and other big homebuilders, which raised debt market risk premiums for weaker Chinese businesses to a record high. “The creditors’ and shareholders’ interests will be completely protected in strict compliance with the law,” Yi stated. “The seniority of liabilities is clearly stated in the law.”Consumer and home buyer protection would be given first priority by authorities, while creditors’ and shareholders’ rights will be respected, he added. According to Yi Gang, the PBOC is taking a number of actions to mitigate financial risks, including replenishing capital for small and midsize banks.

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