Federal Reserve flags potential risk from China's Evergrande

[WASHINGTON] Stresses in China's real estate sector including from heavily-indebted Evergrande have the potential to impact the United States if they spread first to the Chinese financial system, the Federal Reserve said on Monday.

Noting the concerns about high debt levels and inflated real estate values causing regulators in Beijing to take action, the central bank's latest Financial Stability Report said the stresses could cause "a sudden correction of real estate prices" and impact the China's financial system.

As one of China's biggest property developers, fears around Evergrande's debt mountain have battered investor sentiment and shaken the country's mammoth real estate market, but the firm recently met an interest payment it was expected to miss.

"Given the size of China's economy and financial system as well as its extensive trade linkages with the rest of the world, financial stresses in China could strain global financial markets through a deterioration of risk sentiment, pose risks to global economic growth, and affect the United States," the report said.

The issue was one of several possible financial risks the Fed said had the potential to impact the United States.

Fed Chair Jerome Powell in September downplayed the situation noting the lack of direct US exposure, but said it could hit global consumer confidence.

AFP