By Leika Kihara

(Reuters) – China’s economic performance is good, but there are challenges due to mismanagement. The People’s Bank of China Governor Yi Gang stated on Sunday that China’s economy faces default risks.

Recent weeks have seen concern grow about the collapse of China Evergrande Group. This property developer has over $300 billion of liabilities, and has not paid three rounds of interest on its dollar bonds.

The company is struggling with its debt and worries over a potential spillover from China’s property industry into the wider economy are growing.

Yi Gang stated that default risk for certain firms, as well as operational problems of small- and medium-sized banks are some of the major challenges facing China’s economy. Authorities are monitoring these issues closely “so that they don’t become systemic risks”.

Although growth in China has been slowing due to coronavirus infection, Yi stated that China’s economy will grow by 8% this year. Yi spoke at the online Meeting of the Group of 30 International Banking Seminar. This seminar coincides with annual meetings of both the International Monetary Fund (IMF) and the World Bank.

To avoid an even greater systematic risk, authorities will initially try to keep Evergrande problems from spreading to others real estate firms.

Evergrande’s crisis, along with other homebuilders majors, drove the debt market risk premiums of weaker Chinese businesses to record heights last week. This triggered another round of credit rating reductions.

Yi declared that “the interest of shareholders and creditors will be completely respected in strict accordance with law.” “The law clearly indicates the seniority liability.”

He stated that authorities will protect consumers and homeowners with the greatest priority, but respect the rights and interests of shareholders and creditors.

Yi Gang reported that the PBOC took various measures to mitigate financial risks such as replenishing bank capital, Yi Gang explained.

The second-largest country in the world has seen an incredible recovery after the pandemic. However, signs are beginning to show that it is slowing.

He stated that although economic growth may have slowed, the path to recovery is not affected.

Yi Gang stated that the PBOC would focus its attention on the domestic and retail usage of the digital yuan. However, cross-border and global use was “a bit difficult” because it has to address issues like money laundering.

“We will cooperate closely with the central banking community,” he stated, noting that using digital currency to promote China’s Belt and Road Initiative was “not our priority right now.”