LONDON — European Central Bank President Christine Lagarde believes Europe’s direct exposure to the embattled Chinese property firm Evergrande can be “limited.”
It comes at a time when international inventory markets are on excessive alert over Evergrande’s huge debt issues.
Investors concern Evergrande, which has seen its share worth plummet in current months amid a widespread crackdown by Beijing on extremely leveraged builders, will default on numerous bond funds this week.
The firm is deeply intertwined with China’s broader financial system, and plenty of monetary establishments are uncovered to the cash-strapped developer by direct loans and oblique holdings.
Market consultants say a deepening liquidity crisis at Evergrande may ship additional ripples throughout the worldwide financial system, however they consider the problem will seemingly be contained by the Chinese authorities and isn’t anticipated to set off imminent contagion.
Speaking to CNBC’s Annette Weisbach in Frankfurt, Germany on Thursday, Lagarde stated the ECB was holding tabs on the debt-laden property developer.
“We are looking at it,” she stated. “We are monitoring and I had a briefing earlier on today because I think that all financial markets are interconnected.”
“I have very vivid memories of [the] latest stock market developments in China that had a bearing across the world. But in Europe and in the euro area, in particular, direct exposure would be limited,” Lagarde stated.
When requested whether or not the ECB was ready for the prospect of a chaotic international knock-on impact within the occasion of Evergrande’s collapse, Lagarde replied: “As I told you, for the moment, what we are seeing is [a] China-centric impact and exposure. I can’t speak for the United States [but] I can say for Europe that its direct exposure is limited.”
Lagarde’s feedback come shortly after U.S. Federal Reserve Chair Jerome Powell stated Evergrande’s debt issues appeared explicit to China.
Powell advised reporters on Wednesday that he didn’t see a parallel with the U.S. company sector.
“In terms of the implications for us, there’s not a lot of direct United States exposure. The big Chinese banks are not tremendously exposed, but you would worry it would affect global financial conditions through global confidence channels and that kind of thing,” Powell stated on Wednesday.
“I wouldn’t draw a parallel to the United States corporate sector,” he added.
Shares of Evergrande in Hong Kong fell round 7% on Friday. The Wall Street Journal reported Thursday that Chinese authorities have advised native officers to put together for a possible demise of Evergrande.