The Chinese central bank, the People’s Bank of China, boosted its gross injection of short-term cash into the financial system to the tune of ¥120 billion ($18.6 billion). This action comes after China’s real estate giant Evergrande’s debt crisis caused global markets to sell-off.
As previously mentioned, the Chinese central bank injected ¥120 billion ($18.6 billion) into the banking system through reverse repurchase agreements, resulting in a net injection of ¥90 billion (13.92 billion). Asides from the injection, investors’ morale was also boosted after Evergrande’s onshore property unit stated that it plans to repay the interest due on its local bonds tomorrow.
Many are saying the move by China’s central bank was necessary in order to calm market jitters because the Evergrande crisis caused losses in Chinese-related equities worldwide. Senior rates strategist at DBS Bank Ltd, Eugene Leow seems to share this view.
Leow stated, “The PBOC’s net injection is probably aimed at soothing nerves as the market worries about Evergrande. While the aim may be to instill discipline, there is also a need to prevent contagion into the real economy or to other sectors.”
The benchmark CSI 300 Index declined by 0.70% today after the Hang Seng China Enterprises Index, a gauge of Chinese shares traded in Hong Kong, posted a decline not seen in two months on Monday. Losses came even as Wall Street analysts sought to reassure investors that Evergrande won’t lead to what many are calling a Lehman Brothers moment.
According to an exchange filing that was posted today, Evergrande’s onshore property unit stated that it negotiated a plan with bondholders to repay its interest due tomorrow on local yuan bonds. The company said it will make the interest payment for its 5.8% 2025 security. Data compiled by Bloomberg puts the amount due for the coupon at ¥232 million ($35.9 million). Bloomberg sources revealed that Evergrande missed its interest payments that were due on Monday to at least two of its largest bank creditors.
What they are saying
Many analysts, including those at Citigroup Inc., Barclays Plc, and UBS Group AG, are saying that the Evergrande crisis isn’t likely to become the Chinese version of the Lehman Brothers collapse. However, chief economist at Greater China, Ding Shuang, explained that simply boosting liquidity won’t be enough to solve the Evergrande crisis.
He stated, “What the market hopes the government will do is to come up with a plan that can help the company restructure and refinance in a smooth way. China’s bottom line is that it won’t allow the Evergrande issue to turn into a full-fledged financial crisis or let it trigger any systemic risks.”
Evergrande is down 0.44% for the day to currently stand at 2.27 HKD (Hong Kong Dollar). The Evergrande stock listed on the Frankfurt Stock Exchange gained 20% after news that the property unit stated that it will repay its interest due tomorrow on local yuan bonds.