Major developer warns it could run out of money

BEIJING — A Chinese developer that is struggling under $310 billion in debt warned Friday it may run out of money to “perform its financial obligations” — sending regulators scrambling to reassure investors that China’s financial markets can be protected from a potential impact.

Evergrande Group’s struggle to comply with official pressure to reduce debt has fueled anxiety that a possible default might trigger a financial crisis. Economists say global markets are unlikely to be affected but banks and bondholders might suffer because Beijing wants to avoid a bailout.

After reviewing Evergrande’s finances, “there is no guarantee that the Group will have sufficient funds to continue to perform its financial obligations,” the company said in a statement.

Regulators tried to soothe investor fears by issuing statements saying China’s financial system was strong and that default rates are low. They said most developers are financially healthy and that Beijing will keep lending markets functioning.

Beijing tightened restrictions on developers’ use of borrowed money last year in a campaign to rein in surging corporate debt that is seen as a threat to economic stability.

The ruling Communist Party has made reducing financial risk a priority since 2018. In 2014, authorities allowed the first corporate bond default since the 1949 communist revolution. Defaults have gradually been allowed to increase in hopes of forcing borrowers and investors to be more disciplined.

Despite that, total corporate, government and household debt rose from the equivalent of 270% of annual economic output in 2018 to nearly 300% last year, unusually high for a middle-income country. Economists say a financial crisis is unlikely but debt could drag on economic growth.