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What's Behind the Recent Bump in China's Default Rates?

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What's Behind the Recent Bump in China's Default Rates?

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.