SHANGHAI/HONG KONG, March 19 A denial by China's
central bank that it is involved in emergency talks to bailout a
troubled property developer reinforced signals Beijing is now
more willing to let banks and other investors take losses on
Media reports said the central bank was in talks with
Zhejiang Xingrun Real Estate Co, which government officials have
said is on the brink of bankruptcy. That led to financial market
speculation the government could bail out the company.
However, the reports "did not accord with reality", the
People's Bank of China said in a post on China's Twitter-like
Weibo. "The PBOC has not joined any crisis management process
with Zhejiang Xingrun."
Domestic media said Zhejiang Xingrun, based in eastern
Zhejiang province, owes banks about 2.4 billion yuan ($387
million) and individual investors another 1.1 billion, which
officials said was raised illegally by the company's owner and
his son. They have been detained.
For years, investors have assumed that authorities will
bailout companies that run into financial problems.
The fact authorities did not step in to prevent China's
first default on a domestic bond earlier this month raised major
doubts about that assumption. And the central bank's comments
distancing itself from the Zhejiang Xingrun case underscored the
point, analysts said.
"The recent default case is all backed by government
initiative to let the market play a bigger role in valuation. It
is an opportunity to educate investors and issuers on how to
work in this market," said Qiong Wu, credit analyst with BOCI
Securities in Hong Kong.
"So far, credit quality was not a consideration and
investors were chasing high yields without caring for credit
quality. This will create awareness."
Chinese property stocks, including Shenzhen-listed China
Vanke and Poly Real Estate, fell on
Wednesday after the central bank denial.
Still, the local government where Zhejiang Xingrun is based
said it is negotiating with six banks over how to resolve the
company's outstanding debts, suggesting officials remain
involved in managing the process.
Fenghua city government said the central bank was not
involved, but said city officials had met with representatives
from the Zhejiang-based branches of China Construction Bank
, Agricultural Bank of China
, Ping An Bank, Shanghai Pudong
Development Bank, Evergrowing Bank and China
Zheshang Bank to consider how to resolve Zhejiang Xingrun's
outstanding loans. The banks declined to comment.
While Beijing wants to signal that investors should be
prepared to adopt more risk, analysts cautioned against reading
too much into recent events.
Both solar equipment producer Chaori Solar,
which defaulted on the bond, and Zhejiang Xingrun, are privately
held and do not represent a risk to the financial system.
In addition, Zhejiang Xingrun's investments are localised in
Ningbo, where property prices have been falling steadily for
years as a speculative bubble inflated by loan sharks has
"The government has a track record of letting private
companies fail. This has happened before," said Terry Gao, an
analyst at ratings agency Fitch.
"It does not necessarily follow that the local government
will not bail out selective local government public sector
entities," Gao said. "That means the contingent liability of
potential bailouts could still be large."
(Reporting by Adam Jourdan and Pete Sweeney in SHANGHAI and
Umesh Desai in HONG KONG; Editing by Neil Fullick)