State will not abandon property developers, local governments - Central bank of China
ALBAWABA – The central bank of China will provide emergency funding to heavily indebted local governments as needed, as well as the debt-laden property sector, People’s Bank of China (PBOC) Governor Pan Gongsheng said Wednesday in a speech at the Financial Street Forum in Beijing.
“When it’s necessary, the People’s Bank of China will provide emergency liquidity support to regions with a relatively heavy debt burden,” Pan.
Pan also vowed to satisfy the financing needs of all types of developers regardless of whether they are private or state-owned.
The spillover impact on the financial system from the real estate market’s correction is generally manageable, he added.
Central bank of China will support heavily indebted local governments
According to the International Monetary Fund (IMF), as reported by Bloomberg, China’s hidden debt, i.e. local government debt, comprises nearly 50 percent of the country’s Gross Domestic Product (GDP).
As it stands, China’s regional banks may be exposed to a capital hit of $302 billion from their local government debt, S&P Global Ratings warned last month, as per Bloomberg.
The central bank of China has vowed to support private and state-owned property developers - Shutterstock
In “a downside scenario,” about a fifth of the regional lenders could sink below the minimum regulatory capital adequacy ratio of 8% and require recapitalization, S&P added.
Central bank of China to back debt-laden developers
Meanwhile, China’s real estate developers, both private and state-owned, face a protracted property crisis, which has caused two of the country’s largest property behemoths to default on debt payments.
Evergrande, the second-largest developer in China, defaulted in 2021 and it was then considered the height of the Chinese real estate debt and liquidity crisis, which started in 2020.
Since then, developers accounting for 40 percent of Chinese home sales have defaulted on their debt obligations, as reported by Reuters.
Late last month, China’s largest developer, Country Garden, missed a dollar coupon payment, and is expected to miss more. Failing to meet the deadlines on these payments means the company may not be able to get the debt restructuring deal it needs to avoid bankruptcy.
Overall, property crises seem to be sweeping through the world’s biggest economies, from Japan and China, all the way to the European Union, the United Kingdom and the United States.
