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The head of the PBOC faces challenges of “mismanagement” in some companies



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Chinese People’s Bank Governor (PBOC) Yi Gang attends a press conference on China’s economic development ahead of the 70th anniversary of its establishment, in Beijing, China, September 24, 2019. Reuters / Florence Lu / Photo File

  • China will be vigilant to avoid systematic risk – Yi Gang
  • Beijing will prefer the protection of consumers, home buyers
  • China’s recovery path remains unchanged – Yi Gang
  • PBOC will focus on domestic retail use of digital yuan

October 17 (Reuters) – China’s economy is “doing well” but faces challenges such as certain companies’ default risks due to “mismanagement”, the People’s Bank of China said Sunday.

Concerns have grown in recent weeks over the collapse of asset developer China Evergrande Group (3333.HK), which holds more than $ 300 billion in liabilities and missed three rounds of interest payments on its dollar-denominated bonds.

As the company faces its debts, concerns about a possible reversal of credit risk from China’s asset sector to the wider economy have intensified. read more

Yi Gang said that the default risks of some companies and the operational difficulties of small and medium-sized banks are among the challenges for the Chinese economy, and that the authorities are closely monitoring “so that they do not become systematic risks.”

Although growth has slowed due to a sporadic rise in corona virus infections, China’s economy is expected to grow 8% this year, Yi said at an online meeting of the group of 30 international banking seminars, which is in line with the IMF’s annual meetings. And the World Bank.

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

The thunderous crisis in Evergrande and other large home buildings has raised risk premiums on debt markets for weaker Chinese companies to a peak last week and led to a new round of credit rating downgrades. read more

“The interest of creditors and shareholders will be fully respected in accordance with the law,” Yi said. “The law clearly indicated seniority of liabilities.”

According to him, the authorities will give the highest priority to the protection of consumers and buyers of apartments, while respecting the rights of creditors and shareholders.

The PBOC has taken various steps to ward off financial risks, such as capital renewal for small and medium-sized banks, Yi Gang said.

The second largest economy in the world has made impressive progress from the epidemic but there are signs that the recovery is losing steam.

“Economic growth has slowed slightly, but the economic recovery path remains unchanged,” he said.

On the development of the digital yuan, Yi Gang said the PBOC will focus on domestic and retail use, as cross-border and international use is “slightly complicated” due to requirements on issues such as money laundering.

“We will work closely with the central banking community,” he said, adding that the use of digital yuan as a tool to promote the Chinese Belt and Road Initiative “was not our top priority at this stage.”

Report by Leica Kihara in Tokyo; Edited by Jan Harvey

Our Standards: Thomson Reuters’ Principles of Trust.

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