Chinese Bond Market Sees Spate of Defaults in 2018

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China has seen a sizeable number of bond defaults since the start of the 2018.

The latest data indicates that as of 7 May there have been a total of 19 defaults in China since the start of the year, involving a total of ten different entities.

These include DunAn Group, China Security & Fire, Sichuan Coal, Dalian Machine Tools, Dandong Port Group, Bright Oceans Corporation, China City Construction, Shenwu Environmental, Fuguiniao and Chunhe Group.

There have been two primary reasons for the recent spate of bond defaults, the first being rapid growth in operations for some enterprises followed by downward turn in their respective industries, leading to difficulty paying copious amounts of debt accumulated.

The second is the impact of external shocks, in particular the tighter controls on shadow banking imposed by Chinese regulators since 2017, in tandem with restrained monetary policy implemented by the People’s Bank of China, which has deprived many enterprises of easy access to financing as well as raised borrowing costs.

Analysts point out that 2018 is a peak year for the maturation of corporate debt, with as much as 5 trillion yuan in bonds scheduled to come due.

Given the prevailing tightness of funds in China, Beijing’s ongoing corporate deleveraging campaign, as well as the imposition of government controls upon certain sectors such as real estate and overcapacity industries, analysts foresee considerable repayment pressure for many enterprises in months to come.

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