China’s central bank has said that the country’s financial system is resilient enough to withstand any risks from the recent $6.5 billion acquisition of a stake in a Hong Kong-listed property developer by a Chinese state-owned enterprise.
Concerns about possible contagion from China Evergrande Group’s EGRNF 0.41 percent debt issue were allayed by China’s central bank, which said the danger of the developer’s troubles spilling over into the financial system was manageable.
According to Chinese official media sources, Zou Lan, the People’s Bank of China’s head of financial markets, stated on Friday that Evergrande has recklessly diversified and grown. Mr. Zou said that as a result, the company’s operations and finances had deteriorated significantly. However, he noted that individual financial institutions’ risk exposure to the developer isn’t significant.
The firm recently disclosed total liabilities of more than $300 billion, including $89 billion in debt.
Mr. Zou said that the issue is presently being resolved by relevant authorities and local governments based on rule-of-law and market-oriented principles.
He said they were encouraging Evergrande to speed up asset sales and begin projects in order to safeguard house purchasers’ interests, and that financial authorities, the housing ministry, and local governments would work together to offer financing assistance so that projects could continue.
The central bank official went on to say that Evergrande’s difficulties are a one-off occurrence, and that land and house prices have stayed steady, indicating a robust real-estate market.
Although the central bank has said that it would support the housing market, it has not directly addressed Evergrande’s problems since the developer fell behind on dollar-bond payments last month. It and other financial authorities called Evergrande officials to a conference in August, warning them they needed to address their debt problems without disrupting the property and financial markets.
In September, an usually robust month, home sales by China’s top developers dropped significantly. Another Chinese developer, Fantasia Holdings Group Co., said earlier this month that it had missed a dollar bond payment, adding to the gloom surrounding China’s heavily indebted property firms.
As it battles to stay afloat, Evergrande, China’s most indebted property developer, has put global markets on edge and prompted domestic demonstrations. The Wall Street Journal examines why the company’s problem is increasing concerns about the world’s second-largest economy. Photo credit: Shutterstock/Alex Plavevski
Separately, Hong Kong’s Financial Reporting Council said it was looking into whether Evergrande’s latest financial statements properly addressed so-called going-concern concerns, or cautions issued in accounts if a company’s capacity to remain afloat is in doubt.
The audit watchdog said in a statement Friday that it had “found concerns regarding the sufficiency of reporting on going concern” in the Hong Kong-listed company’s most recent annual and first-half accounts, as well as in PricewaterhouseCoopers’ 2020 auditor’s report. The regulator said that it has launched a probe into PwC’s audit as well as an examination into Evergrande’s latest financial statements.
The Wall Street Journal revealed last month that when PwC signed off on Evergrande’s 2020 accounts, it didn’t add a going-concern warning. The Journal stated that the threshold for issuing such warnings is high, and any worries about the company’s financial health may not have been sufficient to warrant such a notification.
—This article was co-written by Grace Zhu.
Evergrande Group of China: Stalled Construction and Huge Debts
Elaine Yu can be reached at [email protected]
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‘China Plays Down Risks From Evergrande Crisis,’ appeared in the print edition on October 16, 2021.
