China’s Central Bank and Banking Regulator Seek to Reassure Markets as Evergrande Fails to Guarantee Debt Repayments

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Both the People’s Bank of China (PBOC) and the China Banking and Insurance Regulatory Commission (CBIRC) have made haste to reassure markets of the limited impact of the debt woes of Evergrande Group on the Chinese finance sector and financial reform, just after the property giant said there was no guarantee it was in a position to make repayments.

“Evergrande Group’s risk primarily originates from its own unsound operations and blind expansion,” said PBOC in a statement posted on its official website on 3 December.

“The offshore US dollar debt market is highly marketised, its investors are more mature, and they have strong ability to discriminate. With regard to the handling of related problems there are clear legal provisions and procedures.

“If in the short-term individual real estate enterprises suffer from risk, this will not impact the regular financing capabilities of the medium and long-term market.

“Recently domestic real estate sales, land purchases and financing have already gradually returned to normal, and some Chinese real estate companies have started to repurchase offshore debt, while some investors have started to purchase the US dollar bonds of Chinese real estate companies.”

PBOC reiterated its commitment to the maintenance of financial market reform and opening in its statement.

“China has continually upheld the operation of a fair market environment, and appropriately advanced the bidirectional opening of Chinese financial markets in an orderly manner,” said PBOC.

“The relevant authorities will continue to maintain communications with the relevant regulatory authorities of offshore markets, for the appropriate disposal of debt issues and the active implementation of statutory debt repayment duties.”

With regard to decision of the Guangdong province government to dispatch a work team to Evergrande Group, PBOC said this was for the purpose of “advancing enterprise risk disposal work and overseeing pragmatic strengthening of internal controls,” and that it supported the decision.

On the same date a CBIRC official said that Evergrande Group’s refusal to guarantee bond repayments was an “individual case in the market economy,” and that the exposure of the Chinese financial system to Evergrande was both limited and diffuse.

“Out of Evergrande Group’s debts, financial debts comprise approximately one third, and are comparatively diffuse,” said the CBIRC official.

“For this reason, this will not have any negative impact upon the regular operation of China’s banking and insurance sectors.

“The trend of reform and opening to make Chinese finance more market-based, rule-of-law-based and international will not undergo any change.”