China bond defaults tripled in 2018 – the case of one property developer shows why
- Corporate bond default cases surged to 119 in 2018 from 35 in 2017 while defaulted bond value tripled amid a trade war with the United States
- Default of private property developer Yinyi Co Ltd showcases troubles of China bond issuers
The year 2018 witnessed an unprecedented wave of corporate bond defaults in China, as the world’s second biggest economy lost steam amid a trade war with the United States.
The expectation that the economy will slow further, combined with the government’s continued efforts to rein in debt and risky lending, suggest the number of defaults is likely to increase further next year.
The number of corporate bond default cases surged to 119 in 2018, or more than triple the 35 cases in 2017, while the value of defaulted bonds also tripled to 116.6 billion yuan (US$16.95 million) in 2018 from 33.7 billion yuan (US$4.90 million) in 2017, according to the data compiled by Wind Information, a Chinese financial data provider.
While the defaulted issues represent only a small fraction of onshore bonds in China, the rapid pickup in defaults is exposing deep strains in the country’s debt-fuelled growth model of the last decade.
China’s property sector, which lies at the centre of the construction and development boom, had accumulated debts, including bank loans, trust loans and bonds, of 15.6 trillion yuan (US$2.27 trillion) as of June 2018, more than double the 7.6 trillion yuan three and half years ago, according to Lu Ting, China chief economist at Nomura.
As China’s economic growth slowed and the government’s deleveraging campaign made lenders cautious about extending more credit, many property developers have struggled to repay debts.