China tries to reassure on Evergrande as default fears rise

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China’s central bank has released additional money to lend as the government tries to reassure the public that there could be a potential drop if a troubled real estate developer’s $310 billion in debt collapses.

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BEIJING — China’s central bank on Monday released additional funding for lending as the government tried to reassure the public that it could face a potential decline if a troubled real estate developer’s $310 billion in debt collapses. .

The People’s Bank of China said it freed up 1.2 trillion yuan ($190 billion) to lend by reducing the amount of money it would keep as reserves for banks. There was no mention of Evergrande in its announcement, but the move was expected after regulators promised to keep lending markets working after the company warned on Friday it could run out of cash to pay off debt.

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Economists say the ruling Communist Party could avert the credit crisis, but wants to avoid sending the wrong signal by ousting Evergrande in the middle of an official campaign to force companies to cut debt, which is dangerously high, say economists.

The central bank said it wants to “support the growth of the real economy” and reduce finance costs for businesses. It said the reserve cut did not reflect any change from its “prudent monetary policy”.

Reducing financial risk has been a priority for Chinese leaders since 2018. The first bond default of the communist era was allowed to happen in 2014. Defaults have been allowed to rise gradually in hopes of forcing borrowers and investors to be more disciplined.

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