Washington — The Biden administration is closely watching the situation unfolding in China with the world's most indebted property developer, according to Treasury Secretary Janet Yellen, who warned that its struggles to pay back billions in loans could have repercussions for the global economy.
Evergrande, China's second largest property developer, is on the hook for more than $300 billion to creditors.
"Real estate is an important sector of the Chinese economy. It accounts for about 30% of demand," Yellen told "Face the Nation" moderator Margaret Brennan in an exclusive interview. "And a slowdown in China, of course, would have global consequences. China's economy is large, and if China's economy were to slow down more than expected, it certainly could have consequences for many countries that are linked to China through trade."
Over the years, Evergrande has borrowed heavily to finance the construction of apartments, office buildings and shopping malls. But in recent months, the company has come under financial strain and struggled to pay down its debt.
Concerns that the company's collapse could slam Chinese banks and rattle the country's vast real estate market have roiled global financial markets.
The Federal Reserve warned of direct risks to the U.S. in its latest financial stability report. "Financial stresses in China could strain global financial markets through a deterioration of risk sentiment, pose risks to global economic growth, and affect the United States," the report read.
Economists say Beijing can prevent a Chinese credit crunch but wants to avoid appearing to arrange a bailout while it tries to force other companies to reduce reliance on debt. For now, the Chinese government has remained silent about whether it might intervene to restructure Evergrande's debt.
Yellen acknowledged that firms like Evergrande are an issue Chinese regulators are grappling with.
"China has a real estate sector with firms that are overleveraged and it's something that China is trying to deal with," Yellen said.
When asked if Chinese regulators have the capacity to manage these risks, Yellen said, "They're certainly trying to do that, and it's something we're watching closely."
The Federal Reserve said China's push to deleverage companies like Evergrande poses some risk. "The ongoing regulatory focus on leveraged institutions has the potential to stress some highly indebted corporations, especially in the real estate sector, as exemplified by the recent concerns around China Evergrande Group," according to the Fed's financial stability report.
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