China can withstand Evergrande 'shock', says OECD

A man walks past the Evergrande Centre in Shanghai, China, on Sept 21, 2021.
A man walks past the Evergrande Centre in Shanghai, China, on Sept 21, 2021.PHOTO: EPA-EFE

PARIS (AFP) - China's economy can cope with the fallout from the possible collapse of debt-riddled property giant Evergrande and contagion to other markets would be limited, the OECD's chief economist said on Tuesday (Sept 21).

Global markets have seesawed this week over fears that the company's travails could have a ripple effect on the world's second biggest economy and beyond.

"We think the Chinese authorites do have fiscal capacity and monetary capacity to buffer the shock," OECD chief economist Laurence Boone said.

The group has a US$300 billion (S$400 billion) debt pile - equivalent to 2 per cent of China's GDP - and is struggling to pay it back, with payments on two bonds due on Thursday.

In a report issued earlier this week the S&P ratings agency indicated it believed authorities in Beijing would intervene if they believed any large-scale fallout was likely to materialise.

The situation has raised fears of a replay of the collapse of US banking giant Lehman Brothers in 2008.

But Boone downplayed the risks of contagion from Evergrande.

"We have to look at the real side and the financial side," Boone said at a news conference on the OECD's world economic outlook.

"On the real side, obviously when there is less demand in China this can have an impact," she said.

"On the financial side, the connexion between China financial markets and other financial markets is much less than what we are seeing in the western world, so the impact here would be fairly limited except for some special companies," said Boone.

The OECD 2021 economic outlook report maintained its growth forecast for China at 8.5 per cent.