China pumps $18.6 billion into banking system amid Evergrande crisis

Bloomberg

China’s central bank boosted its overall injection of short-term cash into the financial system, after worries about the debt crisis in China Evergrande group turbulent global markets.In this regard, the People’s Bank of China injected 120 billion yuan ($18.6 billion) into the banking system through reverse repo agreements, resulting in a net injection of 90 billion yuan ($14 million). This matches the amount seen on Friday, and was slightly less than Saturday’s amount. Sentiment was also boosted after Evergrande’s onshore real estate unit said it plans to pay interest due Thursday on its local bonds.

Commenting on the matter, Eugene Liu, chief interest rate analyst at DBS Bank Ltd in Singapore, said: “The PBoC’s net injection is likely to be aimed at calming nerves given market concerns about the Evergrande. While the goal may be to instill discipline, there is also a need to prevent contagion into the real economy or other sectors.”

Read also: Wall Street message on “Evergrand”: China is in control

The urgent need to calm market tensions is emerging amid losses in China-related stocks around the world in recent days and concerns about Evergrande’s debt problems. The benchmark CSI 300 Index plunged 1% on Wednesday after the Hang Seng Index of Chinese companies – a measure of Chinese stocks traded in Hong Kong – fell the most in two months on Monday. The losses came even as Wall Street analysts sought to reassure investors that Evergrande would not present a Lehman-style scenario.

Is the Evergrande crisis similar to the Lehman disaster?

Indeed, China’s monetary operations aim to strike a balance between stimulating growth that has been hit by the outbreak of the new coronavirus outbreak and tightening regulations, while preventing asset bubbles. Authorities also tend to loosen their grip on liquidity through the end of the quarter, due to increased demand for cash from banks in order to meet regulatory requirements. Lenders also need to stockpile more money before the one-week holiday at the beginning of October.

Mitul Kotecha, chief emerging markets strategist for Asia and Europe at TD Securities in Singapore, said there was “relief given the decent injection of net liquidity, although some of it will be required for Quarterly regulatory compliance. This indicates a desire to maintain liquidity stability over the coming days.”

Notably, Evergrande’s local real estate unit said it has negotiated with bondholders a plan to pay interest due on September 23 on local yuan bonds, according to a vaguely worded document on Wednesday. The company said it will pay interest on its bonds due in 2025 with an interest rate of 5.8 percent, as the amount owed for the coupon was 232 million yuan, according to data compiled by Bloomberg.

It came after Evergrande defaulted on interest payments due on Monday to at least two of its largest bank creditors, according to people familiar with the matter who requested anonymity because the information is private.

Ghost of Lehman Brothers

In addition, Uncertainty over how to resolve the financial problems at China’s largest real estate developer — with commitments worth $300 billion — has grown as authorities have declined to provide any public guarantees of a state-led decision. The slowdown in China’s economy has exacerbated investor anxiety. However; Many analysts — including those at Citigroup, Barclays and UBS Group — say the Evergrande crisis is unlikely to become a Chinese version of Lehman’s collapse.

Furthermore it; Deng Shuang, chief economist for Greater China and North Asia at Standard Chartered in Hong Kong, said just boosting liquidity by itself would not be enough to solve the Evergrande crisis. “What the market is hoping the government will do is come up with a plan that can help the company restructure and refinance in a smooth way. The bottom line for China is that it won’t allow the Evergrande case to turn into a full-fledged financial crisis, or raise any systemic risks,” he added. .