US Fed warns China property sector stress could pose ‘risks’ to American economy

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Ongoing scrutiny by Beijing of corporate debt could stress highly indebted companies, spillover to financial firms, Fed says

Given size of its economy, stresses in China could strain global financial markets, US central bank says

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The US Federal Reserve cited stress in China’s property sector as a potential risk to the American financial system, about two months after its chairman Jerome Powell downplayed the potential risk of contagion from China Evergrande Group. Photo: AFP

Chad Bray

Published: 11:56am, 9 Nov 2021Updated: 10:54pm, 9 Nov 2021

The US Federal Reserve warned in its semi-annual financial health check overnight that stress in China’s real estate sector could pose “some risks” to the American financial system, pointing to the recent concerns surrounding China Evergrande Group, the world’s most indebted property developer.

In its latest Financial Stability Report, the US central bank said the ongoing regulatory scrutiny by Beijing over corporate debt levels has the potential to stress the property sector and other highly indebted businesses, which could lead to spillovers to financial firms, a sudden correction in real estate prices or a reduction in investor appetite in the mainland.

“Given the size of China’s economy and financial system as well as its extensive trade linkages with the rest of the world, financial stresses in China could strain global financial markets through a deterioration of risk sentiment, pose risks to global economic growth, and affect the United States,” the Fed said.

The statement came about two months after Fed chairman Jerome Powell downplayed the potential risk of contagion from Evergrande at a press conference, saying the Evergrande situation “seems very particular to China”.

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World’s most indebted developer, China Evergrande Group, buys time to repay more creditors

Evergrande, China’s biggest builder of homes, has struggled under the weight of 1.97 trillion yuan (US$308 billion) in total liabilities and missed several interest payments on its offshore debt in recent months, fuelling concerns about high debt levels in the property sector.

The Shenzhen developer has managed to avoid defaulting on its debt by repaying some missed payments within a 30-day grace period, delivering a smaller amount of homes and repaying suppliers.

US Fed warns China property sector stress could pose ‘risks’ to American economy

Ongoing scrutiny by Beijing of corporate debt could stress highly indebted companies, spillover to financial firms, Fed says Given size of its economy, stresses in China could strain global financial markets, US central bank says

Ongoing scrutiny by Beijing of corporate debt could stress highly indebted companies, spillover to financial firms, Fed says

Given size of its economy, stresses in China could strain global financial markets, US central bank says