China’s corporate bonds market is heading for another year of record defaults, raises concerns about rise in irregularities
- Delinquencies on the mainland, the world’s second-largest bond market, have exceeded 100 billion yuan for three years running now
- However, recent spike in bankruptcies is ‘natural evolution of a bond market’, Fidelity executive says
China’s corporate bond market looks set to see a record in missed repayments this year, surpassing last year’s 143.6 billion yuan (US$21.8 billion) in defaults and heightening concerns about issuers’ credibility and compliance.
Bond defaults had already topped 104 billion yuan between the start of this year and late November, according to Bloomberg data. Delinquencies on the mainland, the world’s second-largest bond market, have exceeded 100 billion yuan for three years running now.
“Rising defaults were expected as economic fundamentals this year are not strong enough to support company growth due to the coronavirus outbreak,” said Wang Feng, chairman of Shanghai-based financial services company Ye Lang Capital. “Investors are increasingly concerned about issuers’ misbehaviour and are urging regulators to tighten oversight on the market.”
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China has been conducting a market-based reform of its bond market since 2014. It was not until March the same year that the country reported its first default, when Shanghai Chaori Solar Energy Science & Technology failed to make an interest payment. Before that, the authorities had stepped in to bail out struggling corporate borrowers with cash injections or restructuring plans.
And the number of defaults in China’s bond market have been growing since. For instance, delinquencies in 2018 were valued at 122 billion yuan, more than quadrupling the levels seen a year earlier.