The US Federal Reserve warned of a possible negative impact of China’s real estate problems on the US financial system. For months now, China developer Evergrande has troubled global investors, as the company is highly indebted .
In addition, other developers Chinese have also struggled to pay off debt, adding to concerns of broader consequences in the world’s second-largest economy, about a quarter of which is driven by real estate.
The Fed detailed that in its latest financial stability report, published twice a year, it stated that “tensions in China’s real estate sector could exert pressure on the Chinese financial system, with possible effects secondary to the United States ”.
The report noted the size of the economy and the China’s financial system and global trade links. Most of the paper analyzed internal financial conditions in the United States, from high prices in the stock market to the growth risks of stablecoins and digital currency pegged to a fixed value such as the US dollar.
Meanwhile, analysts downplayed the importance of the Fed’s comments on the Chinese real estate sector, in the case of Paul Christopher, director of global market strategy at Wells Fargo Investment Institute, who told CNBC that “ China’s real estate activity is slowing down , but developers have large debts and some of them like Evergrande are diversified in other areas of the economy. ”
Paul Christopher added that a slowdown in China’s housing market could ultimately lead to unemployment , a fall in Chinese stocks and deflation, could spread through of global commercial channels It is as China cuts back on its purchases of goods from other countries.
The executive also indicated that “the Chinese government has been struggling with high corporate debt for years, is alert and has resources to deal with the real estate sector ”. And he noted that authorities can still spend more to address a deflationary shock, as they have in the past.
Despite this assertion, previous Fed financial stability reports have mentioned China, about its high levels of debt and “stretched real estate prices” as risks that could spread to the United States.
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