Strains showing for China's indebted firms
After Chaori's bond default, warning signs are flashing for other mainland companies that the government appears reluctant to bail out
Credit warning signs are flashing for heavily-indebted mainland semiconductor, software and commodities companies as the government cautiously steps aside to let market forces play a bigger role in deciding winners and losers.
The mainland's first domestic bond default this month - a missed interest payment from Shanghai Chaori Solar Energy Science and Technology - shattered the belief that Beijing would always bail out struggling firms.
"The Chaori default goes to show the government will begin to let the market decide the fate of weak borrowers," said Standard & Poor's analyst Christopher Lee in Hong Kong.
Lee said defaults would be "incremental but controlled" with sectors including shipbuilding, metals and mining, and materials among those showing the highest risk as China's economic growth slows and banks tighten lending.
Mainland companies owe just over US$1 trillion in domestic bonds, of which 15.8 per cent is coming due this year.
While firms are confident they could obtain credit, domestic rating agencies have stepped up the pace of downgrades. There were 77 companies downgraded in 2013, more than triple the previous year's tally, according to ratings agency China Chengxin.