China’s US dollar debt defaults climb as coronavirus, US tensions hit firms’ bottom lines
- US dollar bond defaults by Chinese firms have jumped threefold to US$12 billion so far this year from US$4 billion for all of 2019
- Market confidence has been shaken, triggering a shortage of dollar liquidity that is limiting some firms’ ability to pay down debt
Defaults by Chinese firms on their US dollar-denominated debt have risen significantly this year as the coronavirus pandemic, a slump in oil prices and deteriorating US-China relations have hurt business and reduced their ability to repay.
US dollar bond defaults by Chinese firms have jumped threefold to US$12 billion so far this year from US$4 billion for all of last year, according to data from French financial firm Natixis.
As world central banks roll out large-scale monetary easing policies, the Asian corporate bond market is stabilising. Investors earlier this year dumped US dollar bonds in large volumes because of a squeeze on dollar financing that created challenges to meet payment obligations.
The default volume of the US dollar debt of Chinese firms is rising mainly because of weaker corporate fundamentals, pressuring internal liquidity
But amid rapidly deteriorating US-China relations and US dollar bonds maturing next year, bond defaults could grow, said Zhang Guo, managing director at China Chengxin (Asia-Pacific) Credit Ratings.
Chinese companies hold US$101.8 billion worth of US dollar bonds that mature this year, a figure which will increase 10 per cent in 2021 and surge another 19 per cent in 2022, according to data from Refinitiv.
Market concern about weak, highly-indebted Chinese firms is similar to March, when a massive dollar shortage led to turbulence in the corporate bond market, Zhang said.