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Evergrande crisis will hurt China’s economic growth, says former central bank advisor

Evergrande crisis will hurt China’s economic growth, says former central bank advisor

9/22/2021 7:57:00 AM

Evergrande crisis will hurt China ’s economic growth, says former central bank advisor

A default by Evergrande will have minimal effect on the Chinese financial system, said Li Daokui, a former advisor at the People's Bank of China .

."The impact is on the real economy because with the default of Evergrande, there'll be [a] slowdown in developments of many projects," Li Daokui, formerly an advisor to the People's Bank of China, told CNBC "" on Wednesday.

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Loading chart..."So the real property market will have an impact on the GDP growth rate for the coming year because of slower finance for the whole sector," said Li, now a professor at Tsinghua University's School of Economics and Management.

He added that a default by Evergrande will have minimal effect on the Chinese financial system because there aren't derivative instruments built on the company's debt.that derive value from an underlying asset, such as stocks and bonds. Traders use derivatives for various purposes including hedging a position and speculating on the underlying asset.

The Evergrande as we understand may not exist.Li Daokuiformer advisor to the People's Bank of China"I think it's a bit too early to predict what's the net impact [of the crisis]. I would say right now, by my rough calculation, 1 basis point on GDP growth ... if the thing is under control from now," said Li.

Read more: CNBC »

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IMF says China has tools to avoid Evergrande's problems becoming systemic crisisThe International Monetary Fund on Tuesday said it is closely following developments surrounding China Evergrande Group , but believes Beijing has the tools to prevent the situation from turning into a systemic crisis. China also had the tools to avoid Corona becoming a pandemic crisis.

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