As
China Evergrande Group edges closer to a massive restructuring, Beijing has stepped up efforts to limit the fallout, signaling it’s willing to prop up healthy developers, homeowners and the real estate market at the expense of global bondholders.
In the last week alone, Chinese authorities have dispatched top financial regulators to nudge the country’s massive banks to ease credit for homebuyers and support the property sector. They also bought out part of Evergrande’s stake in a
struggling bank to limit contagion. The central bank meanwhile has pumped 790 billion yuan ($123 billion) into the financial system over 10 days
to ease liquidity.
The moves underscore that China will do everything it can to ring-fence Evergrande, while showing little interest in a direct bailout of the developer that has roiled global markets for weeks. That doesn’t bode well for bondholders -- both onshore and abroad -- looking for some kind of rescue from the Chinese government.
“The first obligation is going to make sure that homeowners who bought those homes take delivery and are made whole,” said
Marathon Asset Management Chief Executive Officer Bruce Richards, who started buying Evergrande debt last week. “At the very end of the pecking order are offshore bondholders.”
For China, the risk of contagion far outweighs any potential damage from an Evergrande collapse on its own. Though Evergrande is one of the largest developers in China, it accounts for just 4% of sales in the country. A run on property firms in the wake of an Evergrande failure threatens to destabilize an industry that accounts for 29% of China’s economy, according to new research from Harvard University economist Ken Rogoff.
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October 04, 2021 at 04:00AM
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China Steps Up Efforts to Ring-Fence Evergrande, Not Save it - Bloomberg
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