John Zhu, Hong Kong-based economist at HSBC says there will be more private bond defaults in China ... that the People’s Bank of China has failed to cut borrowing costs in line with slowing inflation wrecking profits.
- "One thing that worries me is falling inflation, which raises the real value of debt"
- "China's producer price index, an indication of selling prices for goods produced by many SMEs, has been in negative territory for over three years. As a result, profits of those companies have fallen sharply and therefore more failures may occur."
Bloomberg adds:
- A forklift maker, a leather producer and a textiles company have missed payments on privately sold bonds in China this year
- HSBC is forecasting more defaults
- Larger state enterprises can rely on preferential loans from government banks
- But small- and medium-sized enterprises account for 70 percent of economic output and are mostly funded by privately issued debt ... but the delinquencies in the private-bond market have prompted authorities to ban individuals from buying such debt .... backtracking from a goal of expanding the market set up in 2012
