- evergrande crisis will hurt China’s economic growth, says former central bank advisor
- but the crisis will have minimal spillover on the financial system
- in the medium- to long-term, the embattled company will likely be “dissolved” into four main groups
- each of the four sub-parts of Evergrande will be sold to individual companies or even to some local governments
Evergrande’s debt crisis will slow down China’s economic growth, but will likely have minimal spillover on the country’s financial system, according to a former advisor to China’s central bank says an article on CNBC.
Slowdown in developments
“The impact is on the real economy because, with the default of Evergrande, there’ll be a slowdown in developments of many projects,” Li Daokui, formerly an advisor to the People’s Bank of China, told CNBC. So the real property market will have an impact on the GDP growth rate for the coming year because of slower finance for the whole sector.
Effect on the financial system
A default by Evergrande will have minimal effect on the Chinese financial system because there aren’t derivative instruments built on the company’s debt. Derivatives are complex financial securities that derive value from an underlying asset, such as stocks and bonds.
Will Evergrande be dissolved?
Defaults by Evergrande will likely slow down the progress of development projects around China, which will hit local economies in mainland China. That could prompt local and provincial governments to step in with their own money to keep those projects going.
Four main groups:-
In the medium- to long-term, the embattled company will likely be “dissolved” into four main groups: property development, finance, electric vehicles, and other commercial ventures. Each of these four sub-parts of Evergrande will be sold to individual companies or even to some local governments. The Evergrande as we understand may not exist.
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Source: CNBC
