link : China’s Bond Defaults Are Exploding. What Does This Mean?
China’s Bond Defaults Are Exploding. What Does This Mean?
Bloomberg: China’s Bond Defaults Pile Up at Fastest Pace on Record
(Bloomberg) -- Chinese corporations are defaulting on local bonds at the fastest pace on record, as authorities ramp up efforts to introduce more financial discipline and transparency in the world’s second-largest debt market.
Firms so far this year have failed to make payments on 99.8 billion yuan ($15.5 billion) of onshore bonds, according to Bloomberg-compiled data. While 2021 is set to be the fourth straight year the 100 billion yuan level has been topped, it previously hadn’t happened before September. For all of 2015, when China’s stock market crashed, defaults totaled just 8.9 billion yuan.
Missed payments are running at a record pace this year, following the late 2020 defaults of some state-linked firms which affirmed convictions that authorities in China are increasingly willing to not bail out weak firms. The recent tumult surrounding bad debt manager China Huarong Asset Management Co. raised fresh questions about support for central state-owned firms, even as the risk of contagion remains relatively contained. Signs of a maturing credit market have helped Chinese officials’ effort to refocus on financial risks in areas like asset prices and debt levels.
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Update: China’s New Pandemic: A Bond Default Crisis – OpEd (Andrew Moran, Eurasia Review)
WNU Editor: For the past few months I have been telling my business colleagues that what happens in China will .... over a short period of time .... take place in the rest of the world.
Case in point.
China was the first country to be hit with the Covid-19 pandemic. They were the first country to lock down. They were the first country to open up. They were the first to expand (and are still expanding).
Hmmm.....
In today's world it looks like everything happens first in China, and then the rest of the world follows.
Ditto with these bond defaults.
As China starts to tighten up its money supply I predict the rest of the world will follow.
IMHO the US and other major Western economies are just starting to get into that discussion. But the Chinese are already there, and they are gung-ho to get rid of their bad assets as quickly as possible. Especially in their real-estate sector.
Bottom line.
In China there is going to be a lot of pain because of these bankruptcies and defaults. But in that mess stronger and more stable companies and institutions will quickly rise. And in turn a very strong and stable China.
I know the same is going to happen in the West. But delaying this inevitable restructuring will only mean the pain will be deeper when it happens, and the recovery will take longer.
And as for China. They will be well positioned to become even more dominant in the global economy when this is all over. And the scary part is that I think they know it.
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