Fed's Powell says China debt crisis is directly to Japan

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Fed's Powell says China debt crisis is directly to Japan

Fed Chair Powell says not a lot of direct US exposure is directly to Japan.

The global markets reacted with relief on Wednesday when the People's Bank of China resolved 90 billion yuan $13.9 billion in the banking system and an Evergrande unit said it had injected a coupon payment on an onshore bond.

It faces $83.5 million in offshore interest payments due on Thursday on a $2 billion dollar bond. And new payments are due next week, with a $47.5 million bond interest payment due.

Evergrande, China's biggest property developer, ran into trouble over the past few months as Beijing tightened regulations in its property sector to rein back too much debt and speculation. With $305 billion in liabilities, Evergrande found itself struggling to meet its debt obligations and investors worry that the rot could spread to creditors including banks in China and abroad.

Some analysts say it could take weeks for investors to have any clarity about how the situation will resolve.

The company could liquidate its debts, but continue to be in operation, or it could restructure, wrote Paul Christopher, Head of Global Market Strategy at Wells Fargo Investment Institute. In either case, investors in the financial instruments of the company may suffer some losses, he wrote.

The Contagion should however be managed by Chinese investors in the event of a liquidation. He added that the contagion could spread beyond China.

A group of Evergrande bondholders has selected investment bank Moelis Co and law firm Kirkland Ellis as advisers to a potential restructuring of a tranche of bonds, two sources close to the matter previously said

The advice focuses on around $20 billion in outstanding offshore bonds in the event of non-payment, one of the sources said at the time.

Analysts have downplayed the risk that a collapse threatens a Lehman moment or liquidity crunch, which freezes the financial system and spreads globally.

The US Federal Reserve Chair said this week that Evergrande's problems seem particular to China and he did not see a parallel to the U.S. corporate sector.

In terms of the consequences for us, there is a lot of direct United States exposure. The big Chinese banks are not hugely exposed, but you would worry it would affect global financial conditions through global confidence channels and this kind of thing, Powell told reporters after the Fed's policy meeting.