China’s ‘grey rhino’ debt risk highlighted by bond defaults
- Bond defaults by state-owned firms have underscored China’s debt problem, which has grown this year as the economy recovers from the coronavirus
- China’s total domestic debt, including financial loans, will likely hit 335 per cent of GDP in the second quarter of 2020, recent estimates suggest
A series of bond defaults by state-owned firms has highlighted the “grey rhino” risks threatening China’s economic prospects, raising alarm bells about high national debt that has grown to more than three times gross domestic product (GDP).
Yongcheng Coal & Electricity Holding Group, a mine operator owned by the Henan provincial government, defaulted on payment for a AAA rated 1 billion yuan (US$152.2 billion) commercial paper earlier this month, rocking investor confidence and stirring concern about domestic rating agencies.
Though the default was small relative to China’s total US$13 trillion bond market, it underscored China’s debt problem, which is considered a grey rhino risk that could take a significant toll on the economy if unaddressed.
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What happened at the Chinese Communist Party’s major policy meeting, the fifth plenum?
The central government has tried to reduce the country’s overall debt level since 2016, but it was allowed to grow faster this year to rescue its coronavirus-hit economy. Beijing expanded its fiscal budget deficit and lifted the debt limit for local governments to boost spending on infrastructure to steady the economy.