China’s central bank expanded the supply of money for lending Monday as Beijing tried to reassure its public and investors the economy can be protected if a troubled real estate developer’s $310 billion mountain of debt collapses. Evergrande Group’s struggle to turn assets into cash has prompted fear a default might chill Chinese lending markets and cause global shockwaves. Economists say the ruling Communist Party can prevent a credit crunch but it wants to avoid sending the wrong signal by bailing out Evergrande in the middle of a campaign to force companies to cut debt Beijing worries is dangerously high.
The People’s Bank of China said it released 1.2 trillion yuan ($190 billion) for lending by reducing the amount of money banks must hold in reserve. Beijing was expected to show support for lending after Evergrande warned Friday night it might run out of cash, but the central bank made no mention of the company, which it earlier accused of reckless borrowing.
“The company must be punished,” said economist He Fan at Peking University’s HSBC Business School.
