China's real estate problems could affect the United States

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Hong Kong (CNN Business) -

The problems of China's vast real estate sector could spread to the world economy, including the United States, according to the Federal Reserve.

The US central bank warned on Monday that China's current housing problems could heighten "financial tensions in China, [which] could further strain global financial markets and adversely affect the United States."

In its biannual report on financial stability, the Federal Reserve specifically pointed to the crisis of Evergrande, China's most indebted real estate developer.

The company has unleashed contagion fears since September, warning that it could default on its debts of more than $ 300 billion.

Other real estate developers are also in trouble.

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Although "the Chinese authorities have implemented measures to cool down the housing markets," there is a risk that "financial vulnerabilities will continue to increase," the Fed noted.

The central bank warned that given the size of China's economy and financial system, and its global ties, "financial tensions in China could impact global financial markets through deteriorating risk sentiment, pose risks to global economic growth and affect the United States. "

Evergrande is one of the largest property developers in China.

The company is part of the Global 500, which means it is also one of the largest companies in the world by revenue.

Stock markets in Hong Kong, New York and other major exchanges have been influenced by fears of contagion from Evergrande and slowing growth in China.

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These fears had dissipated in recent weeks, as Evergrande raised enough money to meet international debt payments, including raising about $ 144 million in recent days from the sale of a small stake in the company. HengTen Networks Group, but faces much larger accounts in the coming months.

The conglomerate debacle is seen as a big test for Beijing.

At first, some even raised the possibility that a company default could become China's "Lehman Brothers moment", although many analysts later said that the government is unlikely to let that happen.

Another Chinese real estate developer is in trouble 1:01

The People's Bank of China previously said that Evergrande had mismanaged its business, but that the risks to the financial system were "controllable."

And China's Vice Premier Liu He has stressed that risks are generally under control, despite what he calls "individual problems" in the housing market.

Last month, the authorities also called on companies to pay off their debts and pay off principal and interest payments on their bonds abroad, according to a government statement.

It was not specified to which companies the message was directed, but in recent weeks, a number of real estate developers have revealed their own liquidity problems, asking lenders for more time to pay them or warning of possible defaults.

The stakes are high: Real estate, and related industries, account for as much as 30% of China's GDP.

Financial crisis