China’s Evergrande debt woes could spill over to the US, the Fed says


Evergrande Changqing community on September 24, 2021 in Wuhan, China.

  • The US Federal Reserve has warned that stresses in the Chinese real-estate sector from Evergrande’s debt crisis could spill over to the US.
  • In September, Fed Chair Jerome Powell said there was “not a lot of direct United States exposure” from Evergrande’s crisis.
  • Evergrande is now the world’s most indebted company with a $300 billion debt pile.

The US Federal Reserve has warned that stresses in the Chinese real-estate sector from Evergrande’s debt crisis could spill over to the US.

In its Financial Stability report released on Monday, the Fed warned of high leverage at financial institutions and stretched real-estate valuations in China.

“In this environment, the ongoing regulatory focus on leveraged institutions has the potential to stress some highly indebted corporations, especially in the real estate sector, as exemplified by the recent concerns around China Evergrande Group,” said the Fed in its report.

Such stresses could spread to the Chinese financial system, through spillover to financial firms, a sudden correction in real estate prices, or a reduced investor risk appetite, said the Fed.

“Given the size of China’s economy and financial system as well as its extensive trade linkages with the rest of the world, financial stresses in China could strain global financial markets through a deterioration of risk sentiment, pose risks to global economic growth, and affect the United States,” the central bank added.

Real-estate giant China Evergrande is now the world’s most indebted company with a $300 billion debt pile. It has managed to pay off several overdue coupons just in time, averting a default that could send the rest of the sector – and possibly the rest of the world – into a massive crisis.

The issues surrounding Evergrande are among several financial risks the Fed said had the potential to hit the US. Other risks include a potential worsening of the public health situation and a sharp rise in interest rates.

In September, Fed Chair Jerome Powell said there was “not a lot of direct United States exposure” from Evergrande’s crisis, per Reuters.

Investors worldwide have been spooked by Evergrande’s debt woes, fearing contagion across the global economy should the company default. But Chinese officials have sought to calm nerves about the debt crisis, saying the problems would not spiral out of control.



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