Fears of contagion from Chinese builder's debt problems ease
BEIJING (AP) — Fears that a Chinese real estate developer’s possible default on multibillion-dollar debts might send shockwaves through global financial markets appeared to ease Thursday as creditors waited to see how much they might recover.
Shares of Evergrande Group, one of China’s biggest private sector conglomerates, rose 18% in Hong Kong after the company said it would pay interest to bondholders in China.
The company gave no sign whether it would make a payment due Thursday on a separate bond abroad.
Evergrande’s struggle has raised fears it might destabilize China’s financial system and set off a global chain reaction. But economists said while Chinese banks and other creditors are likely to suffer losses, there appeared to be little way a default on its 2 trillion yuan ($310 billion) in debt would hurt the Chinese system or feed through to financial markets abroad.
“It’s definitely a local problem in China,” said Robert Carnell, head of Asian research for ING.
“There will be some suppliers and others who will go bust,” Carnell said. “But it’s not systemic in a sense that I can put my finger on.”
Chinese regulators have yet to say what Beijing might do. But despite that, plus uncertainty about how much banks and individual buyers of Evergrande’s bonds might lose, stock markets appeared to recover from anxiety that caused Chinese stocks to tumble on Monday.
China’s benchmark Shanghai Composite Index closed 0.4% higher on Thursday. Hong Kong’s Hang Seng rose 1.2%. Markets in Australia and Southeast Asia, where economies depend heavily on trade with China, also rose.
Markets are “in a worst is over frenzy” after Evergrande’s promise to pay bondholders, said Jeffrey Halley of Oanda, in a report.