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China faces challenges from 'mismanagement' at certain firms, says PBOC head

Published 10/17/2021, 11:22 AM
Updated 10/17/2021, 07:35 PM
© Reuters. FILE PHOTO: Governor of People's Bank of China (PBOC) Yi Gang attends a news conference on China's economic development ahead of the 70th anniversary of its founding, in Beijing, China September 24, 2019. REUTERS/Florence Lo/File Photo

© Reuters. FILE PHOTO: Governor of People's Bank of China (PBOC) Yi Gang attends a news conference on China's economic development ahead of the 70th anniversary of its founding, in Beijing, China September 24, 2019. REUTERS/Florence Lo/File Photo

By Leika Kihara

(Reuters) -China's economy is "doing well", but faces challenges such as default risks for certain firms due to "mismanagement", the People's Bank of China Governor Yi Gang said on Sunday.

Concerns have grown in recent weeks over the possible collapse of property developer China Evergrande Group, which has more than $300 billion in liabilities and has missed three rounds of interest payments on its dollar bonds.

As the company wrestles with its debt, worries about a possible spillover of credit risk from China's property sector into the broader economy have intensified.

Yi Gang said default risks for some firms and operational difficulties of small and mid-sized banks are among the challenges for China's economy, and that authorities are keeping a close eye "so they do not become systematic risks".

While growth has moderated due to a sporadic rise in coronavirus infections, China's economy is expected to grow 8% this year, Yi said at an online meeting of the Group of 30 International Banking Seminar, which coincides with the annual meetings of the International Monetary Fund and World Bank.

Authorities will first try to prevent problems at Evergrande from spreading to other real estate companies to avoid a broader systematic risk, he added.

The rumbling crisis at Evergrande and other major homebuilders drove debt market risk premiums on weaker Chinese firms to a record high last week and triggered a fresh round of credit rating downgrades.

"The interest of creditors and shareholders will be fully respected strictly in accordance to law," Yi said. "The law has clearly indicated the seniority of liabilities."

Authorities will give the highest priority to the protection of consumers and home buyers, while respecting the rights of creditors and shareholders, he said.

The PBOC was taking various steps to fend off financial risks, such as replenishing capital for small and midsize banks, Yi Gang said.

The world's second-largest economy has staged an impressive rebound from the pandemic but there are signs the recovery is losing steam.

"Economic growth has been slowed down a little bit, but the trajectory of economic recovery remains unchanged," he said.

© Reuters. FILE PHOTO: Governor of People's Bank of China (PBOC) Yi Gang attends a news conference on China's economic development ahead of the 70th anniversary of its founding, in Beijing, China September 24, 2019. REUTERS/Florence Lo/File Photo

On the development of digital yuan, Yi Gang said the PBOC will focus on its domestic and retail use as cross-border and international usage was "a little bit complicated" due to requirements over issues such as money laundering.

"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".

Latest comments

Oh, my apologies, I forgot to mention about this - while the world were arguing with China about her credibilities, Evergrande's crisis, economy figures etc etc lol China was quietly strengthening her currency Chinese Yuan or RMB, it's now - USD100.00 = RMB 643.9, whereas it was like USD100.00 = RMB700.00++ a year ago. See that? China sold some USD Bonds along the years and bought back recently, smart move. Thought I read someone typed - China owns USA ? lol
As for the on-going Evergrande's crisis, I am very sure it's well contained. For all we know, it's been settled quietly at their end that even the media didn't get the actual news at all. As for the corruption part, lol, it's everywhere, depending on how big it is & how it is done, cleverly or stupidity, they all have their shares of corruptions, it's all over the world. Lastly, please stay safe & healthy, wear a mask when outdoors, Cheers!
But, as an investors, you should steer clear of politics, as you main concern is making your money work. Have a clear mind. Back to investments, well, my own forecasts, we're going to have a bumpy road till at least 1st quarter of 2022, early March maybe, we will see a rebound in Asia, East Asia, South East Asia. Why confident in Asia, well, I mentioned earlier, Asian's debts are well controlled & contained in within. Banks in Asia are more careful, more stringent.
if you have investments in China you are dealing with a high risk of loosing your capital.
regulations by china...too little to late... foreign Smart money investment is cashing in and moving their money into the USA markets. China is proving to be a high risk investment . the corrupt authoritarian dictatorship that runs the Chinese economy is finally being exposed for what it is. 8% economic growth rate.... in their dreams.
Unfortunately, China does not stand alone in the corruption arena.
China owns the united states
and they steal from own people with citadel.l
Speaking of stealing from their own people, have you ever heard of The Federal Reserve in the United States? They print dollars and destroy every American's wealth.
Code word for corruption
give examples...
Do NOT remove your money from Bear Stearns!!...
Classic lesson to not trust the media
evergrande hasn't even begun to unravel
It's not just a few firms but the whole system of the communist party is crooked a big ponzi scheme.
It just a couple of firms... China is still growing g at 8% this year... much better than most countries, even at this size.
livingstone china corruption and economic problems will affect the world markets . the Chinese system is on the verg of self destruction. its problems are self inflicted. corruption and incompetent from the top down.
Gee Ac, that sounds just like America and Europe.
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