Washington – The Biden administration is closely monitoring the situation developing in China with the world’s most indebted owner, according to Treasury Secretary Janet Yellen, who warned that its struggles to repay billions of loans could have consequences for the global economy.
Evergrande, China’s second largest owner, is on the hook for more than $ 300 billion to creditors.
“Real estate is an important sector of the Chinese economy. It accounts for about 30% of demand,” Yellen told Face of the Nation moderator Margaret Brennan in an exclusive interview. “And a slowdown in China, of course, would have global consequences. The Chinese economy is large, and if the Chinese economy were to slow more than expected, it could certainly have consequences for many countries that are linked to China through trade.”
Over the years, Evergrande has lent a lot to finance the construction of apartments, office buildings and shopping malls. But in recent months, the company has come under financial stress and struggled to pay off its debt.
Concerns that the company’s collapse could hit Chinese banks and hit the country’s vast real estate market have plagued global financial markets.
The Federal Reserve warned of direct risks to the United States in its latest report on financial stability. “Financial tensions in China could strain global financial markets by worsening risk sentiment, causing risks to global economic growth and affecting the United States,” the report read.
Economists say Beijing may foreclose on Chinese credit, but want to avoid appearing to arrange a bailout while trying to force other companies to reduce debt dependence. Currently, the Chinese government has been silent on whether it could intervene to restructure Evergrande’s debt.
Yellen acknowledged that companies like Evergrande are a problem that Chinese regulators are struggling with.
“China has a real estate sector with companies that are overpriced and it’s something China is trying to deal with,” Yellen said.
Asked if Chinese regulators have the ability to manage these risks, Yellen said, “They’re definitely trying to do that, and it’s something we’re watching closely.”
The Federal Reserve said China’s push to bring down companies like Evergrande poses some risk. “The continued regulatory focus on elevated institutions has the potential to highlight some heavily indebted corporations, particularly in the real estate sector, as exemplified by the recent concerns around China Evergrande Group,” according to the Fed’s financial stability report.