China urges local governments to prepare for eventual collapse of Evergrande

China urges local governments to prepare for eventual collapse of Evergrande

Chinese officials are urging local governments to prepare for the eventual collapse of Chinese real estate giant Evergrande, which faces serious liquidity problems, according to informed sources, indicating a reluctance to bail out the company and in an effort to avoid spillovers from its crisis.

Sources described the initiative as “preparing for a potential storm,” arguing that local government agencies and state-owned companies have been directed to intervene only as a last resort if Evergrande fails to overcome their difficulties in an orderly manner.

According to the sources, local governments have been tasked with preventing disruptions and mitigating the effects of contagion for property buyers and the economy in general, and restricting job cuts, for example, a scenario that becomes increasingly likely as the situation for Evergrande deteriorates.

Evergrande has a series of bonus payments to honor in the coming weeks, including interest on offshore bonds that expire Thursday, 23.

Local governments have also been tasked with bringing together groups of accountants and legal experts to examine the finances of Evergrande’s operations in their areas, discuss with local developers the possibility of taking on local real estate projects and set up teams to monitor any public unrest and protests, the sources say.

Spokesmen for Evergrande and China’s cabinet, known as the State Council, did not immediately respond to requests for comment.

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