Coronavirus: how epidemic could hurt China’s US dollar debt payments
- Global financial turmoil in the past two weeks has made it harder for China to issue new US dollar bonds to rollover existing debt
- China has US$2.03 trillion in US dollar debt and needs US dollars to help defend the yuan exchange rate if its trade position deteriorates
The recent plunge of global financial markets in response to the rapid spread of the coronavirus has heaped pressure on the US dollar bond market, making it difficult for non-American companies – including those in China – to raise funds to rollover their US dollar debt repayments, analysts said.
While there is no emergency at the moment, the risk is rising as the virus, which causes the disease Covid-19, spreads around the globe, triggering escalating containment measures.
“Although Covid-19 seems to be largely under control in China now, the wider global spread of the disease elsewhere could still have secondary effects on China’s economy,” said Chang Li, an analyst at S&P Ratings. “The outbreak could pose a challenge to the cash flow and liquidity [of Chinese firms] at least in the first half of this year.”
Although Covid-19 seems to be largely under control in China now, the wider global spread of the disease elsewhere could still have secondary effects on China’s economy
Signs of stress may already be surfacing among China’s most indebted companies, with the volume of Chinese US dollar-denominated bonds issued falling sharply in February, hampering their ability to raise funds even as China’s central bank eases domestic lending conditions.