Via Bloomberg
The domestic defaults in China's domestic bond market are at $18.7bln, but the offshore bond defaults, a total of just eight, are at $1.97bln.
Here is a look at some of the pros and cons for China's credit going forward:
Pro's
- Defaults are part of a developed credit market and by allowing the market to price in risk shows that Beijing is moving towards a healthy economy able to manage defaults
- Defaults may pick up, but they are at a low number at present.
- The more realistic pricing of risk (i.e. defaults are allowed to happen) is actually improving trust among investors and this has resulted in more cash moving into China's junk bonds which look appealing in a low interest rate yielding environment
Con's
- The default rates may be low, but the type of companies defaulting is a concern
- The biggest state owned firm in 20 years defaulted on dollar debt which raises doubt over Beijing's support for government-linked borrowers
- Wholesale, sector bail outs no longer available as China's economy slows
- If dollar debt is no longer prioritised over domestic bonds (to avoid international reputational damage) then domestic defaults may spill over into the offshore market.
