According to some analysts, the current year could bring a default of $13 trillion to the Chinese bond market. It can be the most ambitious in the history of trading, experts warned.
According to Bloomberg, in the first four months of 2019, Chinese companies announced a default on domestic bonds worth 39.2 billion yuan ($ 5.8 billion). This is 3.4 times more than in the same period of 2018. According to experts, at present, the rate of growth of defaults in the PRC is more than three times higher than that in 2016, when defaults occurred in the first half of the year. If the current situation persists, this year will bring a new, larger-scale default, Bloomberg said.
Chinese authorities continue to encourage banks to accelerate lending to the private sector, especially small and medium-sized companies. On Monday, May 6, the central bank of China weakened a number of rules of mandatory reserves for creditors. At the same time, the Chinese authorities are reducing shadow banking, analysts emphasize.
As a result, the business lacks funding, which leads to a risky policy of bond loans. Experts explain the surge in default, which began at the end of 2017 and continues to this day, precisely by this reduction in funding. Three years ago, in 2016, Chinese authorities began to reduce excess production capacity, which affected the credit markets.
According to analysts of the largest bank Goldman Sachs Group Inc., the level of credit risks in China is much higher than in other countries. There are very high credit stress, as evidenced by a number of situations where companies could not make the planned payments on the bonds, but subsequently completely redeemed them and prevented default. However, this was done almost at the last moment, experts say.
According to analysts, the difficulty lies in the fact that defaults do not provide complete information about China's credit problems. Borrowers avoid strict defaults by combining payments on bonds during grace periods; however, a number of issuers receive assistance from the authorities. However, this does not rescue it from financial problems that are destructive for the country's economy, analysts sum up.
The material has been provided by InstaForex Company - www.instaforex.com