Reserve Bank of Australia worried about Evergrande collapse, China’s Xi Jinping policies


Australia’s most powerful bankers have revealed they are worried about the possible collapse of Chinese property giant Evergrande and Xi Jinping’s Communist policies aimed at the rich.

The Reserve Bank of Australia in October left the cash rate on hold at a record-low of 0.1 per cent but board members were preoccupied with the future of China’s second biggest apartment developer.

The minutes of their meeting a fortnight ago have been released, highlighting concerns about a financial catastrophe in China, Australia’s biggest export market.

With Evergrande now owing $400billion, the Reserve Bank is worried its debt problems could contaminate China’s property sector.

Australia's most powerful bankers have revealed they are worried about the possible collapse of Chinese property giant Evergrande and Xi Jinping's Communist policies aimed at the rich (pictured is the Evergrande Centre in Shanghai)

Australia’s most powerful bankers have revealed they are worried about the possible collapse of Chinese property giant Evergrande and Xi Jinping’s Communist policies aimed at the rich (pictured is the Evergrande Centre in Shanghai)

People's Bank of China governor Yi Gang on Monday admitted Evergrande's problems 'casts a little bit of concern' in a virtual meeting of the Group of 30 but he was optimistic there would not be wider effects'

People’s Bank of China governor Yi Gang on Monday admitted Evergrande’s problems ‘casts a little bit of concern’ in a virtual meeting of the Group of 30 but he was optimistic there would not be wider effects’

‘While Evergrande is small relative to the financial system in China, members noted a financial stability risk from spill overs to other developers and financiers if the resolution of Evergrande’s problems were to be disorderly,’ it said.

People’s Bank of China governor Yi Gang on Monday admitted Evergrande’s problems ‘casts a little bit of concern’ in a virtual meeting of the Group of 30 but he was optimistic there would not be wider effects.

‘Overall, we can contain the Evergrande risk,’ he said.

Nonetheless, Reserve Bank of Australia governor Philip Lowe and his board members noted China’s attempts to address financial system problems could potentially lower growth in China, the world’s second biggest economy. 

China’s economy grew at an annual pace of 4.9 per cent in the September quarter, down sharply from 7.9 per cent in the June quarter, the National Bureau of Statistics revealed on Monday.

The three-month growth pace of 0.2 per cent was significantly weaker than the previous quarter’s 1.2 per cent.

Evergrande was mentioned seven times in the meeting minutes, with the 25-year-old property giant founded by Xu Jiayin having missed three annual interest payment deadlines to bondholders since the end of September.

‘In China, authorities had continued to balance addressing increased financial system vulnerabilities with avoiding a realisation of those vulnerabilities that would sharply lower economic growth,’ the RBA minutes said.

‘This trade-off had been a feature of the significant focus on the liquidity crisis facing Evergrande. 

Chinese Communist Party President X Jinping's 'common prosperity' policies, aimed at redistributing wealth from billionaires, have also concerned the RBA

Chinese Communist Party President X Jinping’s ‘common prosperity’ policies, aimed at redistributing wealth from billionaires, have also concerned the RBA

‘More generally, the number of adjustments to policy occurring simultaneously had increased the potential for unintended outcomes.’

Chinese Communist Party President Xi’s ‘common prosperity’ policies, aimed at redistributing wealth from billionaires, have also concerned the RBA.

‘More generally, members noted that renewed focus in China on achieving “common prosperity”, combined with a range of regulatory actions, had created more uncertainty about the medium-term outlook for policy settings and the economy in China,’ it said.

‘Some observers had interpreted these developments as an attempt to curtail the influence of the private sector, while others saw it more as the next stage of long-running strategies to reduce poverty and corruption and to promote social fairness.’

China’s cutbacks to steel production to meet net zero by 2060 climate change targets have already caused the spot price of iron ore, Australia’s biggest export, to halve from $US200 a tonne in July to less than $US100 in late September, with prices now at $US123.

Reserve Bank of Australia governor Philip Lowe and his board members noted China's attempts to address financial system problems could potentially lower growth in China, the world's second biggest economy

Reserve Bank of Australia governor Philip Lowe and his board members noted China’s attempts to address financial system problems could potentially lower growth in China, the world’s second biggest economy

The RBA, however, was confident the fall in iron ore prices would be offset with an increase in coal prices, as China grapples with electricity shortages. 

‘The previously announced caps on Chinese steel production and concerns about excess leverage in China’s property sector had put further downward pressure on iron ore prices,’ it said.

‘However, onshore coal prices had surged as a result of strong demand, low inventories and domestic supply disruptions.’  

The spot price of coal at $US240 a tonne is near the recent record-high of $US269 with China and India facing electricity shortages. 



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