Monday, November 29, 2021

Australia bankers worried about Evergrande, China’s policies

Reserve Bank of Australia

With Evergrande now owing $400billion, the Reserve Bank is worried its debt problems could contaminate China’s property sector

Australia’s most powerful bankers have revealed they are concerned about the possible collapse of Chinese property giant Evergrande and China’s policies aimed at the rich.

The Reserve Bank of Australia (RBA) in October left the cash rate on hold at a record-low of 0.1 per cent but board members were preoccupied with the future of China’s second biggest apartment developer.

The minutes of their meeting a fortnight ago have been released, highlighting concerns about a financial catastrophe in China, Australia’s biggest export market.

With Evergrande now owing $400billion, the Reserve Bank is worried its debt problems could contaminate China’s property sector.

While Evergrande is small relative to the financial system in China, members noted a financial stability risk from spill overs to other developers and financiers if the resolution of Evergrande’s problems were to be disorderly, it said.

People’s Bank of China governor Yi Gang on Monday admitted Evergrande’s problems ‘casts a little bit of concern’ in a virtual meeting of the Group of 30 but he was optimistic there would not be wider effects.

Overall, we can contain the Evergrande risk, he said.

Nonetheless, Reserve Bank of Australia governor Philip Lowe and his board members noted China’s attempts to address financial system problems could potentially lower growth in China, the world’s second biggest economy.

China’s economy grew at an annual pace of 4.9 per cent in the September quarter, down sharply from 7.9 per cent in the June quarter, the National Bureau of Statistics revealed on Monday.

The three-month growth pace of 0.2 per cent was significantly weaker than the previous quarter’s 1.2 per cent.

In China, authorities had continued to balance addressing increased financial system vulnerabilities with avoiding a realisation of those vulnerabilities that would sharply lower economic growth, the RBA minutes said.

This trade-off had been a feature of the significant focus on the liquidity crisis facing Evergrande. More generally, the number of adjustments to policy occurring simultaneously had increased the potential for unintended outcomes, the RBA minutes said.

China’s ‘common prosperity’ policies, aimed at redistributing wealth from billionaires, have also concerned the RBA.

More generally, members noted that renewed focus in China on achieving ‘common prosperity’, combined with a range of regulatory actions, had created more uncertainty about the medium-term outlook for policy settings and the economy in China, it said.

It said: Some observers had interpreted these developments as an attempt to curtail the influence of the private sector, while others saw it more as the next stage of long-running strategies to reduce poverty and corruption and to promote social fairness.


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