PBoC joins talks on collapsed developer

A man walks past the People’s Bank of China headquarters in Beijing. China’s central bank and banking regulator yesterday joined discussions on how to contain financial risks from the collapse of a developer.

Bloomberg/Beijing

China’s central bank and banking regulator joined discussions on how to contain financial risks from the collapse of a developer with 3.5bn yuan ($565mn) of debt, officials familiar with the matter said.

Officials from the People’s Bank of China and the China Banking Regulatory Commission’s branches in the eastern city of Ningbo met yesterday to discuss possible resolutions including a bailout of Zhejiang Xingrun Real Estate Co by the local government, the people said, asking not to be named because they weren’t authorised to discuss the matter. Representatives from China Construction Bank Corp and other creditors also joined the meeting with officials from Ningbo and Fenghua, where the closely held developer is based, they said.

The extent of any intervention to ease creditors’ losses is a potential signal of how far Premier Li Keqiang’s government is willing to go to forestall any market turmoil from failed companies or financial products amid a slowing economy. At the same time, bailouts may increase dangers of moral hazard, where firms take on more risk in anticipation of government aid if their bets sour.

“Widespread collapses of property developers will create regional financial risks, and the Chinese leaders have made it very clear that that’s the last thing they will tolerate,” said Xu Gao, chief economist with Everbright Securities Co in Beijing, who previously worked for the World Bank. “It can allow individual cases like the one in Fenghua to happen but it won’t allow many property developers to go bust.”

The Xingrun case doesn’t mean that systemic risks are surfacing, Xu said. He said he believes that the government will relax policies in the property market, including making it easier for developers to raise money.

Calls to the central bank’s news department went unanswered yesterday. The banking regulator’s press office didn’t immediately respond to a faxed request for comment. China Construction Bank is following the situation closely, a Beijing-based press officer said by phone.

The Financial Times reported the central bank’s participation in the meeting earlier yesterday.

Stocks and bonds issued by some Chinese real estate companies including Evergrande Real Estate Group extended a slump amid concerns defaults are starting to mount as the economy slows and the government reins in lending.

The Shanghai Property Index fell 0.9%, as half of its 24 members declined. The gauge has dropped 10.2% this year and touched a 17-month low on March 10.