Chinese authorities are asking local governments to prepare for the potential downfall of China Evergrande Group, EGRNF -11.25% according to officials familiar with the discussions, signaling a reluctance to bail out the debt-saddled property developer while bracing for any economic and social fallout from the company’s travails.
The officials characterized the actions being ordered as “getting ready for the possible storm,” saying that local-level government agencies and state-owned enterprises have been instructed to step in to handle the aftermath only at the last minute should Evergrande fail to manage its affairs in an orderly fashion.
They said that local governments have been tasked with preventing unrest and mitigating the ripple effect on home buyers and the broader economy, for example by limiting job losses—scenarios that have grown in likelihood as Evergrande’s situation has worsened.
Evergrande faces a series of bond payments in the coming weeks, including one closely watched deadline Thursday for an interest payment on an offshore bond.
Local governments have been ordered to assemble groups of accountants and legal experts to examine the finances around Evergrande’s operations in their respective regions, talk to local state-owned and private property developers to prepare to take over local real-estate projects and set up law-enforcement teams to monitor public anger and so-called “mass incidents,” a euphemism for protests, according to the people.
Representatives for Evergrande and the information office of China’s cabinet, the State Council, didn’t immediately respond to requests for comment. Last week, Evergrande said it had hired financial advisers, and reiterated that default was a risk. It warned of tremendous pressure on its cash flow and liquidity, but said it was “strengthening implementation of measures to ease the liquidity crisis,” and said the advisers would explore ways to reach “an optimal solution for all stakeholders.”
Evergrande is a 25-year-old developer based in the southern metropolis of Shenzhen. It has projects—about 800 in progress and spread across more than 200 cities—in every province of mainland China, according to its most recent annual report. Its deepening financial troubles have rattled investors, employees, suppliers and home buyers, and begun to spill over into other parts of the Chinese economy.
The company said work on some of its real-estate projects was suspended after it delayed payment to suppliers and contractors. Some unpaid contractors and would-be homeowners have protested at Evergrande’s offices.
China’s top financial regulator, the Financial Stability and Development Committee, earlier this month told provincial governments to set up working groups to monitor social and economic instability around Evergrande, some of the people said. The Evergrande situation comes ahead of a closely watched leadership meeting next year.