BEIJING: China's central bank released extra money for lending on Monday as the government tried to reassure the public it can contain the potential fallout if a troubled real estate developer’s US$310 billion mountain of debt collapses.
The People's Bank of China said it freed up 1.2 trillion yuan for banks to lend by reducing the amount of money they must hold as reserves. Its announcement made no mention of Evergrande, but the move was expected after regulators promised to keep lending markets functioning following the company's warning Friday it might run out of cash to pay debts.
The ruling Communist Party can prevent a credit crunch but wants to avoid sending the wrong signal by bailing out Evergrande in the middle of an official campaign to force companies to cut debt Beijing worries is dangerously high, economists say. The central bank said it wanted “support the development of the real economy” and reduce finance costs for businesses. It said the reserve cut represented no change from its “prudent monetary policy”.
Reducing financial risk has been a priority for Chinese leaders since 2018. The first bond default of the communist era was allowed to occur in 2014. Defaults have gradually been allowed to increase in hopes of forcing borrowers and investors to be more disciplined.
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