A default by Evergrande will have minimal effect on the Chinese financial system, said Li Daokui, a former advisor at the People's Bank of China.
"The impact is on the real economy because with the default of Evergrande, there'll be [a] slowdown in developments of many projects," Li Daokui, formerly an advisor to the People's Bank of China, told CNBC ""So the real property market will have an impact on the GDP growth rate for the coming year because of slower finance for the whole sector," said Li, now a professor at Tsinghua University's School of Economics and Management.
He added that a default by Evergrande will have minimal effect on the Chinese financial system because there aren't derivative instruments built on the company's debt. that derive value from an underlying asset, such as stocks and bonds. Traders use derivatives for various purposes including hedging a position and speculating on the underlying asset.former advisor to the People's Bank of China
"I think it's a bit too early to predict what's the net impact [of the crisis]. I would say right now, by my rough calculation, 1 basis point on GDP growth ... if the thing is under control from now," said Li.
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