China’s central bank said Friday that the risk of spillover from embattled property giant Evergrande to the financial sector was “controllable,” breaking its silence on the company’s debt troubles, state media reported.
Concerns are mounting that the cash crunch at Evergrande – which is struggling with more than US$300 billion in liabilities – could lead to contagion for the wider Chinese economy.
Authorities are “carrying out risk disposal and resolution work in accordance with the principles of rule of law and marketization,” People’s Bank of China official Zou Lan said at a briefing, according to an outlet under the Xinhua state news agency.
“In recent years, the company has been poorly managed, and was unable to operate cautiously in accordance with changes in the market situation,” he said on Friday, according to Shanghai Securities News.
“Instead, it blindly diversified and expanded, causing the serious deterioration of operating and financial indicators, and eventually an explosion of risk,” added Zou, who heads the PBOC’s financial market department.
Authorities will also help ensure that financial support is provided for the resumption of work on Evergrande’s property projects, he said, stressing that the real estate sector remained “generally healthy.”
Evergrande’s liquidity crisis came as the country’s property sector found itself under tightened scrutiny, after regulators announced caps for three different debt ratios in a scheme dubbed “three red lines” last year.
Fears over China’s property sector have intensified in recent weeks after another Chinese developer, Fantasia Holdings, missed payments on debt obligations, while real estate firm Sinic cautioned that it might also see a default.
In August, the central bank said it had summoned executives at Evergrande and warned that the company needed to reduce its debt risks.
In a statement last month, the PBOC said that China’s financial sector should meet the goals of “stabilizing land and housing prices” and “insist on not using real estate as a short-term economic stimulus.”
Evergrande’s predicament has triggered public anger and rare protests outside the firm’s offices in China as investors and suppliers demanded their money back.