Tests of Credibility: Huarong, Evergrande, and Regulatory Tightening

Credit risks are materializing in both onshore and offshore markets, and are migrating closer to critical actors within China’s financial system—local governments, property developers, and state-owned asset management companies. But government credibility is under pressure in financial markets following aggressive regulatory actions against dynamic firms in China’s private sector, raising some concern that Beijing is less committed to maintaining market stability than achieving a new set of political objectives.

This juxtaposition of rising credit risks and weakening government credibility in financial markets is dangerous. China has avoided financial crisis in recent years principally because of market participants’ steadfast belief in Beijing’s commitment to provide necessary and sufficient government support in response to any financial stress that might materialize.

Posted August 23, 2021
Facebook Twitter Pinterest