Some parts of China's credit markets are sending up distress signals. In the past few weeks, several domestic corporate bonds have defaulted. Over the same period, several property developers delayed their interest payments on bank loans and trust loans. S&P Global Ratings believes these developments show a deterioration of liquidity as funding windows are closed on weak borrowers.
The financial deleveraging campaign has led banks and financial institutions to unwind the off-balance-sheet funding that some companies have relied on to finance aggressive business expansion in the past several years. The campaign also extends to local government debt and state-owned companies in oversupplied industrial sectors. Compounding the situation is a slow unwind of the "China bid" for offshore assets amid rising global interest rates and de-risking by Chinese institutions.
Private Company Defaults Have Jumped
|Name||Company Type||Bond Type||Default date||Sector||Amount (Bil. RMB)|
|Sichuan Coal Industry Group||SOE||PPN||9-Jan-18||Coal||0.50|
|Dandong Port Group Co. Ltd.||POE||PPN||15-Jan-18||Infrastructure||0.50|
|Bright Oceans Corp.||POE||Exchange-traded||27-Jan-18||Capital goods||0.21|
|Dandong Port Group Co. Ltd.||POE||Exchange-traded||29-Jan-18||Infrastructure||2.00|
|Bright Oceans Corp.||POE||Exchange-traded||28-Feb-18||Capital goods||0.76|
|Dandong Port Group Co. Ltd.||POE||MTN||12-Mar-18||Infrastructure||1.00|
|Dandong Port Group Co. Ltd.||POE||MTN||13-Mar-18||Infrastructure||0.90|
|Shenwu Environmental Technology Co. Ltd.||POE||Private Placement||14-Mar-18||Capital goods||0.45|
|Bright Oceans Corp.||POE||Exchange-traded||17-Apr-18||Capital goods||1.21|
|Fuguiniao Co. Ltd||POE||Exchange-traded||23-Apr-18||Consumer||0.15|
|Fuguiniao Co. Ltd||POE||Private placement||24-Apr-18||Consumer||1.30|
|China Security & Fire Co. Ltd.||POE||Private Placement||7-May-18||Tech hardware||0.09|
|Kaidi Ecological and Environmental Technology Co., Ltd.||POE||MTN||7-May-18||Tech hardware||1.20|
SOE--State-owned enterprise. POE--Privately owned enterprise. PPN--Private-placement note. MTN--Medium-term notes program.
Bil.--Billion. Source: WIND, S&P Global Ratings.
In this article, we answer some of the common questions about the broader implications of the tightening of funding as the deleveraging campaign pushes forward.