Commentary: China needs bolder moves for growth after energy and Evergrande troubles

China will quickly overcome the power shortages, which are already becoming less acute. But developing a more resilient, sustainable energy sector will take time.And if each step of the development is not carefully planned and implemented, this transition could weigh on economic growth. THREAT OF EVERGRANDE COLLAPSE The Evergrande crisis, too, poses serious risks to growth. Over the years, owing to defective corporate governance, the developer expanded at a frantic pace, not only through its real estate investments, but also by diversifying into the electric vehicle industry. To fund its activities, it borrowed heavily from both commercial banks and capital markets, including issuing dollar bonds to foreign investors. Ultimately, it racked up some 800 billion yuan (US$124 billion) in debt. Though Evergrande has more than 1.85 trillion yuan in assets, it has not been able to sell them fast enough. Last month, when the company admitted that it is unlikely to be able to service its debts, rumors of an impending collapse – and a potential Chinese financial crisis – began to swirl. Yet fears seem largely to be overblown. To be sure, it would be unwise to predict Evergrande’s fate at this point. But it is probably safe to assume that the debacle does not pose a systemic threat to China’s financial sector. Pundits have been predicting since 2012 that a housing market collapse would trigger a financial crisis in China.

Commentary: China needs bolder moves for growth after energy and Evergrande troubles

China will quickly overcome the power shortages, which are already becoming less acute. But developing a more resilient, sustainable energy sector will take time.

And if each step of the development is not carefully planned and implemented, this transition could weigh on economic growth.

THREAT OF EVERGRANDE COLLAPSE

The Evergrande crisis, too, poses serious risks to growth. Over the years, owing to defective corporate governance, the developer expanded at a frantic pace, not only through its real estate investments, but also by diversifying into the electric vehicle industry.

To fund its activities, it borrowed heavily from both commercial banks and capital markets, including issuing dollar bonds to foreign investors. Ultimately, it racked up some 800 billion yuan (US$124 billion) in debt.

Though Evergrande has more than 1.85 trillion yuan in assets, it has not been able to sell them fast enough. Last month, when the company admitted that it is unlikely to be able to service its debts, rumors of an impending collapse – and a potential Chinese financial crisis – began to swirl.

Yet fears seem largely to be overblown. To be sure, it would be unwise to predict Evergrande’s fate at this point. But it is probably safe to assume that the debacle does not pose a systemic threat to China’s financial sector.

Pundits have been predicting since 2012 that a housing market collapse would trigger a financial crisis in China.