The Chinese bond market in 2019 may face the largest default in its history of $ 13 trillion. This is evidenced by a Bloomberg study.
According to data collected by the Agency, in the first four months of this year, Chinese companies have already defaulted on domestic bonds in the amount of 39.2 billion yuan (5.8 billion dollars). This is about 3.4 times more than the same period in 2018, says Bloomberg. In addition, the pace of development of this process is now three times higher than in 2016, when the risks of default were concentrated in the first half of the year. The trend is clear: if nothing changes, 2019 will show a new high by default for the Chinese bond market.
The reason for this, the Agency explains the reduction in financing companies. China, Bloomberg said, continues to put pressure on banks to provide loans to private businesses (especially small and medium-sized). At the same time, the authorities of the country, the Agency recalls, focused on reducing the system of shadow banking, where credit decisions were made with less control by regulators. So, the surge in default, the authors of the study believe, began at the end of 2017 and continues to this day. In 2016, in their opinion, the Chinese leadership tried to reduce excess production capacity, which ultimately affected the credit markets.
“Short bond maturities mean that companies often have to refinance their liabilities,” says a note from analysts at Moody’s Investors Service. Companies that will not be able to do this, experts say, are likely to face difficulties. “Banks are reluctant to lend to the company,” the experts say, noting that most of these organizations rely on “shadow banks.” The number of the latter continues to decline due to the fact that their regulation is tightened by the authorities.
Among the private companies that defaulted on most of the bonds this year, according to Bloomberg, are Neoglory Holding Group (the main enterprise for the conglomerate), iron wire manufacturer Shandong SNTON Group, China Minsheng Investment Group Corp., Citic Guoan Group Co., and GooGoo Investment Co.