IMF warns China housing stress poses risk of contagion
BEIJING (Reuters) – A funding crisis hitting China’s major property developers could start to rattle the wider economy and global markets, the IMF warned on Friday, saying deeper reforms were needed to fully stem the threat.
The International Monetary Fund report comes as property companies in the world’s second-largest economy grapple with liquidity problems as Beijing seeks to reduce excessive leverage and rampant consumer speculation in the sector.
Among those involved in the crisis is Evergrande, one of the country’s biggest developers, which is embroiled in restructuring talks after racking up $300 billion in debt.
Several other Chinese developers have also defaulted on bond payments in recent months, piling pressure on the wider economy and rattling investors.
“Real estate plays an important role in both China’s economy and financial system, accounting for about a quarter of total fixed investment and bank lending in the past five years before the pandemic,” the official said. IMF in a report released on Friday.
He warned that with developers beyond Evergrande also facing funding issues, there were “concerns about the negative fallout on the wider economy and global markets”.
A sharper-than-expected housing slowdown “could trigger a wide range of negative effects on aggregate demand, with feedback loops through the financial sector,” the IMF said.
In the event of a sudden slowdown in Chinese growth, it 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 points from previous estimates.
Although China’s recovery is “well advanced”, it lacks balance and momentum has slowed, in part due to a late recovery in consumption amid recurrent virus outbreaks, the IMF said. .
China, where the coronavirus first emerged, remains one of the few places in the world with zero Covid infections continuing.
Its strategy of rapid lockdowns and mass testing is facing challenges with new virus variants becoming more transmissible, while repeated local outbreaks have weighed on a full resumption of pre-Covid activity.
The IMF noted that the pandemic is likely to continue to hamper China’s consumption recovery before easing in 2023, but this likely requires “more effective vaccines and a relaxation of the zero-tolerance strategy.”
Earlier this week, a senior IMF official called on China to begin “recalibrating” its aggressive anti-Covid policy to mitigate the negative impact the pandemic continues to have on global supply chains and economic growth. .
But Beijing responded by saying its approach to the coronavirus had achieved “significant results” and the country remained a key driver of global growth.