NEW YORK (Reuters) – China has the capacity to solve the debt problems of the China Evergrande group, although there is a risk that the real estate developer’s pain will escalate to cause wider financial stress, a the IMF said in a report and commentary released Tuesday.
Evergrande, with more than $ 300 billion in liabilities, has worried investors around the world after missing its third round of bond payments in three weeks, heightening market fears of contagion involving other real estate developers as A wall of debt payment obligations matures in the short term. . Chinese real estate companies in debt came under heavy fire in bond markets on Tuesday.
“I believe the authorities have the means to remedy the situation,” Tobias Adrian, director of the IMF’s Monetary and Capital Markets Department, said in a scheduled interview with the release of the IMF’s Global Financial Stability Report on Tuesday. . “They have the fiscal capacity and they have the legal and institutional tools to solve this problem. So one thing that should go wrong is the communication is not very clear and the necessary action is not taken.”
Adrian said that “at the moment the contagion is contained”.
The IMF report says contagion has so far been confined to other financially weak real estate developers and lower-rated companies. If the situation were to “escalate, there is a risk that broader financial strains will emerge, with implications both for the Chinese economy and financial sector as well as for global capital markets to the extreme.”
Beijing has pressured public companies and state-backed real estate developers to buy some of Evergrande’s assets, people with knowledge of the matter have previously said.
“As long as the authorities have a clear plan, I would expect the situation to be resolved,” Adrian said.
In the IMF’s Global Financial Stability Report, the organization more broadly urged policymakers to “act decisively” and target continued economic support tailored to their countries’ needs.
(Reporting by Megan Davies; Editing by Andrea Ricci)