China Evergrande Spillover Risks Can Be Controlled, Central Bank Says

China’s central bank sought to ease concern about potential contagion from

China Evergrande Group’s

EGRNF 0.41%

debt crisis, saying the risk of the developer’s problems spilling over into the financial system was controllable.

Zou Lan, head of financial markets at the People’s Bank of China, on Friday said Evergrande had blindly diversified and expanded, Chinese state media outlets reported. That had led to its operations and finances seriously deteriorating, Mr. Zou said. But he added that the risk exposure of individual financial institutions to the developer isn’t big.

The company recently reported the equivalent of more than $300 billion of total liabilities, including $89 billion of debt.

Mr. Zou said relevant authorities and local governments are currently resolving the situation based on rule-of-law and market-oriented principles.

He said they were urging Evergrande to step up its asset disposals and resume projects to protect the interests of home buyers, and that financial authorities, the housing ministry and local governments would cooperate to provide funding support so projects could restart.

The central bank official added that Evergrande’s problems are an individual phenomenon and that land and housing prices have remained stable, which he said were signs of a generally healthy real-estate industry.

The central bank hasn’t directly addressed Evergrande’s challenges since the developer fell behind on dollar-bond payments last month, though it has said it would support the housing market. In August, it and other financial regulators summoned Evergrande executives to a meeting, telling them the company needed to resolve its debt issues without destabilizing the property and financial markets.

Home sales by China’s major developers fell sharply in September, a typically strong month. Fantasia Holdings Group Co., another Chinese developer, earlier this month said it failed to make a dollar bond payment, adding to the malaise surrounding China’s highly indebted property companies.

Evergrande, China’s most indebted property developer, has kept global markets on edge and sparked protests at home as it struggles to survive. WSJ explains why the company’s crisis is raising questions about the state of the world’s second-largest economy. Photo: Alex Plavevski/Shutterstock

Separately, Hong Kong’s Financial Reporting Council said it was investigating whether recent financial statements by Evergrande had adequately addressed so-called going-concern issues, or warnings made in accounts if there are question marks about a company’s ability to stay afloat.

In a statement Friday, the audit watchdog said it had “identified questions about the adequacy of reporting on going concern” in the Hong Kong-listed company’s most recent annual and first-half accounts and in the auditor’s report by PricewaterhouseCoopers for 2020. The regulator said it had begun an investigation of PwC’s audit and an inquiry into Evergrande’s recent accounts.

The Wall Street Journal reported last month that PwC hadn’t included a going-concern warning when it signed off on Evergrande’s 2020 accounts. However, the bar to issue such warnings is high, and any concerns about the company’s financial health may have been insufficient to trigger such a notice, the Journal reported.

China Evergrande Group: Stalled Construction, Massive Debts

Write to Elaine Yu at

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Appeared in the October 16, 2021, print edition as ‘China Plays Down Risks From Evergrande Crisis.’

China Evergrande Spillover Risks Can Be Controlled, Central Bank Says Source link China Evergrande Spillover Risks Can Be Controlled, Central Bank Says

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