China’s bond market stress creates US$26 billion headache as private firms face unprecedented funding squeeze
- China’s private firms have failed to raise enough fresh funds to repay maturing debt in first deficit since records began
- Elevated borrowing costs have produced shocking delinquencies even among state-owned enterprises in recent months
China’s credit market stress is creating a 185 billion yuan (US$26.4 billion) headache for the nation’s private enterprises as they face the worst funding squeeze in more than two decades amid an economic slowdown.
The companies, regarded as the pillar of the world’s second-largest economy, have raised 1.5 trillion yuan from onshore bond sales this year through December 18, according to data provider Wind, failing to match the 1.69 trillion yuan needed to repay maturing debt.
With less than two weeks of working days to the calendar, that is likely to mark the first annual refinancing shortfall since Wind began tracking the market in 1996. That compares with surpluses of 41 billion yuan in 2018 and 652 billion yuan in 2017.
The crunch reflects the fallout from years of state deleveraging campaign to pre-empt a market implosion following years of debt binge. The clampdown has fanned concerns about rising defaults when economic growth is weakening amid a costly trade war with the US.
“Net fundraising by private firms began to trend downward since 2017 as Beijing started the deleveraging campaign” and tightened other funding loopholes, Citic Securities said in a note published on Monday. Companies in the property, industrial and material industries are among the worst affected, analysts Ming Ming and Li Han wrote, citing persistently high borrowing costs.
China’s private enterprises, which account for over 60 per cent of China’s gross domestic product, have produced some shocking delinquencies this year, including those from smokestack industries in Shandong province. In a recent case, Tunghsu Optoelectronic Technology missed three bond payments in a month.