Bond defaults have soared in China

ON NOVEMBER 25TH China National Radio launched a mini-series to laud President Xi Jinping’s stewardship of the economy. For a state broadcaster, that might sound perfectly normal. But the theme of its first report was neither China’s stellar growth nor its sparkling innovations. Rather than such standard fare for propagandists, it focused on creditor committees, which aim to restructure companies that have run into financial difficulties. It was the latest sign of China’s rapid shift from denying that it had a debt problem just a few years ago to grappling with it publicly.

The bond market bears out the change. It was only in 2014 that China experienced its first default on a domestically traded bond. In 2018 defaults hit 117bn yuan ($16.5bn), triple the previous high. This year defaults are on track to reach roughly the same value. About 1% of all issuers defaulted in the first three quarters of this year, just a little below the global level, according to Fitch, a ratings agency. Bond defaults, says S&P Global, another ratings company, are “becoming a norm”.

China’s central bank has tried to convey the message that this new norm is healthy. In its annual financial-stability report, published on November 25th, it said that the rise in defaults reflected the market’s maturation. As investors become more sensitive to...

via The Economist: Finance and economics Business Feeds

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