China set for record defaults

Chinese companies have defaulted on about 16.5 billion yuan ($2.5 billion) of public bond payments so far in 2018, as against the high of 20.7 billion yuan seen in all of 2016, said data compiled by Bloomberg.

China is heading for corporate bond defaults, with weakening its currency and a slowing economy.
 
In data compiled by Bloomberg, the tally for the first half of 2018 is already nearing a 2016 total.
 
Chinese companies have defaulted on about 16.5 billion yuan ($2.5 billion) of public bond payments so far in 2018, as against the high of 20.7 billion yuan seen in all of 2016, said data compiled by Bloomberg. 
 
A Bloomberg report said strains are set to get worse if the trends of credit-rating companies are anything to go by — agencies including Dagong Global Rating Co. have been downgrading firms by an unprecedented margin.
 
“Corporate profits have worsened this year and are unlikely to improve against the backdrop of an economic slowdown,” Li Shi, general manager of the rating and bond-research department at China Chengxin International Credit Rating Co. 
 
“Refinancing will continue to be tough as long as the crackdown on shadow banking continues.”
 
Borrowers have defaulted payments on at least 20 domestic bonds so far this year, said the Bloomberg data. 
 
There was about 66.3 billion yuan of defaulted notes outstanding at the end of May, or 0.39 per cent of corporate bonds outstanding, PBOC data show. 
 
While still small, that share may be poised to rise.
 
According to JPMorgan Chase & Co., an increasing trade tensions with US could add to defaults in Chinese financial system, which is already in the midst of a deleveraging campaign. 
 
If US administration imposes tariffs on Chinese imports later this week, there will be spinoff effects on the country’s financial sector, Jing Ulrich, JPMorgan’s vice chairman for Asia Pacific was quoted as saying. 
 
Consumer demand and the wider economy are likely to weaken and that “may translate into worse credit quality down the road.”
 
However, China is performing better than other emerging-market peers and can weather any trade war, Ulrich said. 
 
Effective currency and capital controls have contained outflows, market valuations are “much more reasonable” than they were during the meltdown of 2015, and China’s biggest banks benefit from strong capital ratios, she said.
 
Source: Bloomberg

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