Daily Management Review

PBOC Chief Says Challenges From 'Mismanagement' At Certain Firms Faced By China


PBOC Chief Says Challenges From 'Mismanagement' At Certain Firms Faced By China
People's Bank of China Governor Yi Gang believes that the Chinese economy is "doing well," even though there are headwinds challenging it, including default risks for some firms due to "mismanagement".
The huge debt burden of more than $300 billion in liabilities and the missed opportunities of interest payments on its dollar bonds by China Evergrande Group, a major property developer of the country, have in recent weeks have raised concerns among investors and analysts. And with the company struggling to pay interest on its debt has raised fears of a potential credit risk spillover from China's property sector into the broader economy of the country and consequently in other international markets.
The risks of default for some companies and difficulties in operations for small and mid-sized banks are among challenges that are currently facing the Chinese economy, according to Yi Gang. The Chinese authorities are keeping a close eye on them "so they don't become systematic risks"m Gang added.
Yi said at an online meeting of the Group of 30 International Banking Seminar that it is expected that the Chinese economy will grow at a rate of 8 per cent this year even though sporadic increases in coronavirus infections have caused a moderation in the growth of the economy currently. The comments from Yi also come at a time when the International Monetary Fund and the World Bank are also holding their annual meetings.
He added that in order to avoid a broader systemic risk, Chinese authorities will first attempt to stop the debt crisis problems at Evergrande from spilling over to other real estate companies.
The growing debt crisis at Evergrande and other major homebuilders has also triggered a new round of credit rating downgrades last week, as the crisis drove down debt market risk premiums on weaker Chinese firms to a record high.
"The interest of creditors and shareholders will be fully respected strictly in accordance to the law," Yi said. "The law has clearly indicated the seniority of liabilities."
Protection of the interests of consumers and home buyers will get top priority by Chinese authorities even while the rights of creditors and shareholders will also be respected, Yi said referring to the debt repayment crisis at Evergrande.
According to Yi Gang, a number of steps, including replenishing capital for small and midsize banks, are being taken by the PBOC to mitigate financial risks.
A stunning and fast recovery from the pandemic has been made by the world's second-largest economy, but there are signs that the momentum is fading.
"Economic growth has been slowed down a little bit, but the trajectory of economic recovery remains unchanged," he said.
Because of requirements over issues such as money laundering, the focus of the PBOC will be on its domestic and retail use as cross-border and international usage was "a little bit complicated", Yi Gang said while talking about the institution developing digital yuan.
"We will closely cooperate with the central bank community," he said, adding that using digital yuan as a tool to promote China's Belt and Road initiative was "not our priority at this point"