China's Central Bank: Market Can Absorb Developer Debts

China's Evergrande, the most-indebted company worldwide, issued a warning on Friday - but China's Central Bank is reassuring investors.

In a new effort to calm investors, the governor of China's central bank said Thursday that financial markets can handle the impact of a Chinese real estate developer struggling to avoid defaulting on $310 billion in debt.

In a video message to a seminar in Hong Kong, Liu Yimin, vice governor of the People's Bank of China (PBoC), added to signs that Beijing has no intention of rescuing Evergrande Group. Fears of bankruptcy have shook financial markets, but economists argue that the Communist Party does not want to communicate the wrong signal at a time when it wants companies to cut debts.

“The short-term risks of individual real estate companies will not affect the normal financing function of the medium- and long-term market,” said Yi, according to Chinese news sources.

“Evergrande’s hazard is a market event that will be properly handled in accordance with market principles and law,” Yi said. Investors' interests "will be protected in accordance with the law.”

After Evergrande, the world's most-indebted firm, issued a warning on Friday that it might run out of cash, default is now all but assured. The company claims to have 2.3 trillion yuan ($USD350 billion) in assets but can't sell them fast enough to pay its bills.

If Evergrande fails, Beijing can maintain the currency market, and local authorities can put down the flames in real estate markets, according to economists. On Monday, the People's Bank of China released 1.2 trillion yuan ($USD190 billion) from bank reserves for more lending.

News reports that the company has failed to make a payment this week on a U.S.-dollar-denominated bond sold abroad have yet to be confirmed by Evergrande and its creditors.

Kaisa Group Holdings Ltd., another firm, warned it might not be able to pay back a $400 million bond due on Tuesday. The firm has yet to deny reports that it missed the payment, but Fitch Ratings lowered Kaisa's credit rating to "restricted default" while awaiting confirmation.

The government's debt campaign, which slowed down real estate purchases and construction in its early years, has unexpectedly depressed China's economic growth to a four-year low of 4.9% in the three months ending in September. If the financing restrictions are maintained, economists anticipate growth to slow even more.

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