China’s tsunami of bond defaults topped US$17 billion since November, poised to break last year’s record amid tepid growth

China is hurtling toward another record year of onshore bond defaults, testing the government’s ability to keep financial markets stable as the economy slows and companies struggle to cope with unprecedented levels of debt.

At least 15 defaults since the start of November have pushed this year’s total to 120.4 billion yuan (US$17.1 billion), within a hair’s breadth of the 121.9 billion yuan annual record in 2018, according to data compiled by Bloomberg.

While the defaulted notes amount to a small sliver of China’s US$4.4 trillion onshore corporate bond market, they’ve fuelled concerns of potential contagion as investors struggle to gauge which companies have Beijing’s support. Policymakers have been walking a tightrope as they try to roll back the implicit guarantees that have long distorted Chinese debt markets, without dragging down an economy already weakened by the trade war and tepid global growth.

“The authorities have found it hard to rescue all the companies,” said Wang Ying, a Shanghai-based analyst at Fitch Ratings.

This year’s China debt woes have spread to a broad array of industries, from property developers and steelmakers to new-energy firms and software makers. The types of borrowers facing repayment difficulties has also expanded from private companies and local state-run firms to business arms of universities, an obscure and loosely regulated corner of China’s corporate world.