IMF warns China’s property stress poses spillover risk

Underlines need for deeper reforms to fully curb threat

BEIJING:

A funding crisis battering China’s big property developers could start to shake the wider economy and global markets, the IMF warned on Friday, saying deeper reforms were needed to fully curb the threat.

The International Monetary Fund’s report comes as property firms in the world’s second-biggest economy struggle with liquidity problems as Beijing looks to curb excessive debt and rampant consumer speculation in the sector.

Among those embroiled in the crisis is Evergrande, one of the country’s largest developers, which is involved in restructuring negotiations after racking up $300 billion in liabilities.

Multiple other Chinese developers have also defaulted on bond payments in recent months, piling pressure on the wider economy and rattling investors.

“Property plays a large role in both China’s economy and financial system, accounting for about a quarter of both total fixed investment and bank lending over the past five years before the pandemic,” the IMF said in the report released on Friday.

It warned that with developers beyond Evergrande also facing funding problems, there were “concerns of negative spillovers to the broader economy and global markets”.

A sharper-than-expected slowdown in real estate “could trigger a wide range of adverse effects on aggregate demand, with feedback loops to the financial sector,” the IMF said.

Should there be a sudden slowdown in China’s growth, this would also create spillovers via trade and commodity prices, the fund added.

The institution this week lowered its 2022 growth forecast for China to 4.8%, down 0.8 point from earlier estimates.

Published in The Express Tribune, January 29^th, 2022.

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