A senior official from the People’s Bank of China (PBOC) says that the impact of Evergrande Group’s debt crisis on the country’s property market and financial sector will be limited.
“Evergrande Group’s problem is an isolated problem within the real estate industry,” said Zou Lan (邹澜), head of PBOC’s financial market department at a press conference held on 15 October.
“The majority of real estate enterprises have stable operations, excellent financial indicators, and the real estate sector remains healthy overall.
“Following the implementation of real estate macro-controls over the past several years – and in particular the establishment of long-term effective real estate mechanisms, land prices and housing prices on the domestic real estate market are expected to remain stable.”
With regard to Evergrande, Zou said that the company’s “operations management has been poor in recent years, and it has been unable to operate prudentially based on changing market conditions, and as a consequence blindly engaged in diversified expansion.
“This led to severe worsening of operating and financial indicators, and an eventual explosion of risk.”
Zou revealed that Evergrande’s total assets exceed 2 trillion yuan, approximately 60% of which is comprised of real estate development projects involving more than 1000 independent legal person project subsidiaries.
“Financial liabilities comprise less than one third of Evergrande’s total liabilities, and its creditors are diffuse, with individual financial institutions facing little risk,” said Zou.
“Overall, the risk spill-over effects for the financial sector are controllable…at present relevant authorities and local governments are in the process of undertaking risk disposal and resolution work, and urging Evergrande to expand the vigour of risk disposal, accelerate the resumption of project development, and maintain the lawful rights and interests of residential housing consumers.
“During this process financial authorities will cooperate with residential housing and urban rural development authorities and local governments, and effectively provide financial support for project work resumption.”
Zou said that during the first three quarters of 2021 the volume of personal residential housing loans had remained stable, and more or less “on par” with commercial residential sales volumes during the period.
In a small number of cities however housing price growth had been “excessively rapid,” leading to some constraints on the extension of personal one loans to cap price rises.
“After housing prices return to stability, home loan supply-demand relations in these cities will return to normal,” said Zou.
The risk preferences of financial institutions vis-a-vis the real estate sector had also “markedly declined” in the wake of recent events, leading to a sizeable easing in growth in real estate development loans.
“This type of extreme short-term reaction is a normal market phenomenon,” said Zou. “The interbank market and bond market also saw similar responses in 2019, with Baoshang Bank, and in 2020 following the Yongmei and Huachen bond defaults.”
