HONG KONG (BLOOMBERG) – China’s central bank increased its gross injection of short-term liquidity into the financial system after concerns over the China Evergrande group debt crisis rocked global markets.
The People’s Bank of China (PBOC) injected 120 billion yuan (S $ 25 billion) into the banking system through repurchase agreements, resulting in a net injection of 90 billion yuan. This matches the amount observed on Friday (September 17) and was just below that of Saturday.
Sentiment was also strengthened after Evergrande’s onshore real estate unit announced its intention to repay interest due Thursday on its local bonds.
“The net injection of the PBOC is probably meant to ease nerves as the market worries about Evergrande,” said Eugene Leow, senior rate strategist at DBS Bank in Singapore. “While the goal may be to instill discipline, it is also necessary to prevent contagion to the real economy or other sectors.”
The need to calm market nervousness is pressing amid losses in China-related stocks around the world in recent days amid concerns over Evergrande’s debt issues.
The benchmark CSI 300 index fell as much as 1.9% on Wednesday after the Hang Seng China Enterprises Index – an indicator of Chinese stocks traded in Hong Kong – fell the most in two months on Monday.
The losses came even as Wall Street analysts sought to reassure investors that Evergrande would not lead Lehman at some point.
China’s treasury operations aimed to strike a balance between boosting growth affected by new virus outbreaks and tighter regulations, while preventing asset bubbles.
The authorities tend to loosen their grip on liquidity towards the end of the quarter due to increased demand from banks for liquidity for regulatory controls. Lenders also need to accumulate more funds before the week-long vacation in early October.
There was “a relief that there has been a decent net injection of liquidity, although some will be needed for quarter-end regulatory checks,” said Mitul Kotecha, chief emerging markets Asia strategist. and Europe at TD Securities in Singapore. “This indicates a desire to maintain stable liquidity in the days.”
Evergrande’s onshore real estate unit said it has negotiated a plan with bondholders to repay interest due Thursday on local yuan bonds, according to a loosely worded swap brief Wednesday. The company said it will make the interest payment for its 2025 stock at 5.8%. The amount owed for the coupon was 232 million yuan, according to data compiled by Bloomberg.
It came after Evergrande failed to pay interest owed Monday to at least two of its largest bank creditors, people familiar with the matter said, asking not to be identified to discuss private information.
Uncertainty over how the financial woes of China’s largest real estate developer – with $ 300 billion in liabilities – would be resolved increased as authorities refrained from providing public assurances on a state-led resolution.
The slowdown in the Chinese economy has compounded investor anxiety. Still, many analysts – including those at Citigroup, Barclays and UBS Group – say the Evergrande crisis is unlikely to become a Chinese version of the Lehman collapse.
Simply increasing liquidity will not be enough on its own to solve the Evergrande crisis, said Mr. Ding Shuang, chief economist for Greater China and North Asia at Standard Chartered in Hong Kong.
“What the market is hoping the government will do is come up with a plan that can help the company restructure and refinance smoothly,” he said. “The end result of China is that it will not allow the Evergrande problem to turn into a full-blown financial crisis or let it trigger systemic risks.”