China asks local authorities to prepare for ‘potential storm’ if Evergrande fails, WSJ says

China asks local authorities to prepare for 'potential storm' if Evergrande fails, WSJ says

Exterior view of the China Evergrande Center on March 26, 2018 in Hong Kong, China.

Bobby Yip | Reuters

The Wall Street Journal reported Thursday that Chinese officials have asked local authorities to prepare for the possible demise of heavily indebted real estate developer Evergrande.

The WSJ report said local officials described the signals from Chinese officials as “ready for a potential storm” and that the government told them they were only required to stop the ripple effect of the disappearance of Evergrande. Action must be taken in time.

The report says that despite the global impacts, the central government may have a limited appetite to bail out the business. Fears that Evergrande will not pay interest have grown in recent weeks and were seen as one of the reasons for a global market sell-off on Monday.

The company settled payments on local bonds on Wednesday, which helped boost Asian markets. However, it is not clear whether the company will pay interest on its offshore bonds on Thursday.

Bloomberg reported Thursday that officials in Beijing had told the company not to default on those dollar-denominated interest payments.

Evergrande is a conglomerate that has experienced massive growth amid a debt-fueled construction boom in China. High levels of corporate debt raised concerns in Beijing, which led to China’s lending ban, as well as a drop in demand for housing that hurt Evergrande.

Read more about this story in the Wall Street Journal.

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