Chinese authorities warn bond issuers they can’t ‘run away’ from their debts after defaults rock investor confidence
- Financial regulators promise zero-tolerance approach after two high-profile defaults by Huachen Automotive Group and Yongcheng Coal and Electricity
- Cases have alarmed investors who had assumed that local governments would honour their debts
China’s financial regulators have vowed to crack down on people “running away” from their debts after a slew of bond defaults rocked the country’s onshore market.
According to a statement published by state news agency Xinhua on Sunday, the Financial Stability and Development Committee agreed to adopt a zero-tolerance approach and will punish all kinds of “debt evasion” to protect investors. It also promised to investigate “fraudulent issuance, disclosure of false information, malicious transfer of assets and misappropriation of funds”.
The committee, chaired by Vice-Premier Liu He, also told local governments and regulators to “build up a good local finance ecosystem and credit environment”.
The meeting follows a number of high-profile defaults by bond issuers backed by local governments, including a car manufacturer in Liaoning and a coal mine in Henan province, which had hit investor confidence in local governments’ ability or willingness to honour their debts.
As a result, new bond issuance plans were suspended and the yields on some bonds have risen to 34 per cent – a strong indicator of the perceived risk.
The National Association of Financial Market Institutional Investors, a “self-discipline” agency in the interbank bond market, has initiated an investigation into its underwriters and the rating agency.