Europe has restricted publicity to the Evergrande debt disaster
LONDON – European Central Bank President Christine Lagarde believes Europe’s direct exposure to contested Chinese real estate company Evergrande would be “limited”.
It comes at a time when global stock markets are on high alert over Evergrande’s massive debt problems.
Investors fear that Evergrande, whose share price has plummeted in recent months due to widespread Beijing crackdown on heavily indebted developers, will default this week with a string of bond payments.
The company is tightly integrated with China’s broader economy, and many financial institutions have stakes in the financially weak developer through direct loans and indirect stakes.
Market experts say a worsening liquidity crisis in Evergrande could cause further ripples in the global economy, but they believe the problem is likely to be contained by the Chinese government and is unlikely to spark immediate contagion.
In a conversation with CNBC’s Annette Weisbach in Frankfurt on Thursday, Lagarde said the ECB was keeping an eye on the debt-laden real estate developer.
“We’re going to look at this,” she said. “We’re watching that and I had a briefing today because I think all financial markets are interconnected.”
“I have very vivid memories of [the] recent developments in the stock markets in China, which affected the whole world. But in Europe, and particularly in the euro area, direct engagement would be limited, “said Lagarde.
When asked whether the ECB would be prepared for a chaotic global repercussion should Evergrande collapse, Lagarde replied: “As I told you, right now we see … [a] China-centered effects and exposure. I cannot speak for the United States [but] For Europe, I can say that its direct exposure is limited. “
Lagarde’s comments come shortly after Federal Reserve Chairman Jerome Powell said Evergrande’s debt problems were specific to China.
Powell told reporters on Wednesday that he saw no parallel with the US corporate sector.
“As for the implications for us, there isn’t much direct exposure to the US. The major Chinese banks are not immensely exposed, but you’d fear that this would affect global financial conditions through global trust channels and the like,” Powell said on Wednesday.
“I wouldn’t draw a parallel with the US corporate sector,” he added.
Evergrande’s shares in Hong Kong fell around 7% on Friday. The Wall Street Journal reported Thursday that Chinese authorities have directed local officials to prepare for a possible Evergrande demise.