LONDON (BLOOMBERG) – People’s Bank of China (PBOC) governor Yi Gang said the authorities can contain risks posed to the Chinese economy and financial system from the struggles of China Evergrande Group.

The property developer’s trouble “casts a little bit of concern,” Mr Yi said at a virtual meeting of the Group-of-30 on Sunday (Oct 17). “Overall, we can contain the Evergrande risk.”

Concerns have grown that the cash crunch at Evergrande is spilling over to other developers as Chinese President Xi Jinping maintains strict measures to cool the property market. Contagion fears intensified over the past two weeks after a surprise default by Fantasia Holdings Group and a warning from Sinic Holdings Group that its default was imminent.

On Friday, PBOC official Zou Lan said that the authorities and local governments are resolving the situation based on “market-oriented and rule-of-law principles”.

Mr Yi said Evergrande’s liabilities were spread across “hundreds” of entities in the financial system so that there is “not much concentration”.

“The rights and interests of creditors and shareholders will be fully respected in strict accordance with the law. And also the law has clearly indicated the seniority of those liabilities,” he said. Beijing is also trying to protect consumers and homebuyers, he said.

“I think we can prevent systemic risk” by keeping risk contained, he said.

Without mentioning Evergrande, Mr Yi said earlier that higher default risk for some firms due to “mismanagement and breakneck expansion” was slowing China’s economy.

He predicted producer price inflation will start slowing by the end of this year after accelerating at the fastest pace in almost 26 years last month.

The producer price index will “remain high for a few months, before the upward pressure wanes at the end of this year”, Mr Yi said. “Consumer price index growth remains moderate.”

The index last month climbed 10.7 per cent from a year earlier, beating forecasts and reaching the highest since November 1995. Mr Yi said the advance was “largely explained” by rising raw material costs. He said the coronavirus pandemic is “under control” in China, and that the economy is returning to “business as usual”, albeit with its growth easing lately.

He predicted economic expansion of about 8 per cent for the whole year. A report on Monday is set to show gross domestic product slowed to 5 per cent in the third quarter from 7.9 per cent in the previous three months, according to the median forecast of economists surveyed by Bloomberg.

“The growth momentum has moderated somewhat,” Mr Yi said. “Economic growth has been slowed down a little, but the trajectory of the economic recovery remains unchanged.”

“The Chinese economy is doing well in general, but we still face some challenges,” he said. “We are keeping a close eye on all these problems.”

Mr Yi pledged that the central bank would continue to follow “prudent” policy.

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