China debt

A manufacturer of construction materials has become the first Chinese company to default on a domestic junk bond, a state-owned Chinese newspaper said on Tuesday, compounding investor concerns over which mainland issuers could be next to miss debt repayment obligations.

Xuzhou Zhongsen Tonghao, based in the prosperous but highly indebted province of Jiangsu, was unable to meet interest payments on Rmb180m (US$29m) in bonds it sold to domestic investors last year, according to the 21st Century Business Herald, a state-owned newspaper. The missed interest payment was estimated at Rmb18m, given the 10 per cent coupon on the bond, and took place last Friday. Continue reading »

By Diana Choyleva, Lombard Street Research

China’s first corporate bond default in recent history is only the first step on a difficult road of reform. Much like the removal of the floor under the bank lending rate last year, allowing the default of Chaori Solar Energy Science and Technology Co. was the easy part.

It has been dubbed China’s ‘Bear Stearns moment’ by some and its ‘Lehman moment’ by others. It is likely to be neither. Continue reading »

Analysts from Bank of America Merrill Lynch think that China will experience its “Bear Stearns moment” on Friday, when the country will probably see as its first ever bond default.

That is a bold, attention-seeking call that is also patently ridiculous. Continue reading »

A Chinese corporate bond was heading on Tuesday for default, potentially puncturing some of the optimism that has galvanised a booming $12tn corporate debt market.

Shanghai Chaori Solar Energy Science & Technology Co.,Ltd, a Chinese maker of solar cells, announced late on Tuesday that it will not be able to repay the Rmb 89.8m interest on a Rmb1bn bond issued on March 7th 2012. Continue reading »

You can bring a horse to water. But can you stop it from drinking (too much)? In the upcoming year of the horse, China’s leaders need to figure out exactly that, as its local governments thirst for debt threatens to derail the economy. Will they succeed?

Liu Mingkang, former chairman of China’s Banking Regulatory Commission (pictured), left no doubt about the government’s intention to stop the flood of lending: “The signal is clear cut,” he told beyondbrics in an exclusive interview. “The torrent [of local government debt] is becoming quite limited.” Continue reading »

What’s the big deal with GDP anyway? While many economists and policy makers worldwide have recognised that there’s more to life than gross domestic product, it still remains the primary yardstick for measuring economic success.

But Chinese policy makers have decided that it’s not the be-all and end-all, certainly as far as local governments are concerned. This week, a department of the Chinese central committee announced that the success or failure of local authorities will be based on broader criteria than just plain growth. Good news for environmentalists and other groups – and with a greater focus on debt, investors should take note too. Continue reading »

Investors can’t get enough of Cinda’s Hong Kong IPO. On Monday, day one of order taking for the Chinese bad bank, would-be shareholders put in bids of more than $10bn for only $1bn of product. And that’s before retail investors get their chance.

While it may offer a unique (for now) way of accessing China’s economic underbelly, there are some reasons why investors might want to think twice. Here are the main risks facing Cinda. Continue reading »

Building big in Sichuan

While Beijing is trying to transform China’s economy from investment driven to consumption driven, local governments want to keep things going the good old way.

The government of Sichuan, a southwestern province known for its spicy food, spiced up its investment in a high-profile press conference on October 22. The Sichuan government official website said that Sichuan would invest Rmb4.26tn ($700bn) on 2,336 projects in 2013-14, including Rmb1.48tn ($243bn) on infrastructure. It’s not alone, either. Continue reading »

There has been a lot of talk about the ‘great rotation’ from bonds to stocks but are we about to see one from east to west, from China to the US? Chris Watling of Longview Economics talks to the FT’s John Authers about green shoots in the US – and worries in China.

A top Chinese auditor has warned that local government debt is “out of control” and could spark a bigger financial crisis than the US housing market crash, reports Simon Rabinovitch.

Zhang Ke, head of leading Chinese accounting firm ShineWing, said he had all but stopped signing off on bond sales by local governments as a result of his concerns. Continue reading »

Could China in 2013 be heading towards a financial crisis similar to the US in 2008 and Japan in 1989? It’s the billion dollar question of the day, but for now the optimists have been able to outshout the doom-mongers by pointing to China’s much lower debt to GDP ratios than those that characterised the US and Japan before it all went pop.

Then along come analysts from Nomura with some unsettling numbers. Continue reading »

It’s well known that loose credit has played a big role in driving Chinese growth, but the rest of Asia could have a debt problem too. So says HSBC’s Frederic Neumann, who warns that bank credit to GDP in Asia (excluding Japan) is now running at levels higher than in the 1997-8 Asian financial crisis. Continue reading »

Despite racking up huge debts, China’s local governments aren’t allowed to issue bonds to help pay them off. Although there is a small trial programme underway, the market is still effectively closed.

However, the ban doesn’t stretch to local government finance vehicles – LGFVs for short – which are technically corporations, even though they do the work of a government body. Bonds issued by LGFVs – called chengtou bonds – have been booming. Continue reading »

By Ben Simpfendorfer of Silk Road Associates

For the past few years, I’ve described myself as a short-term bull and medium-term bear. But it’s time to update that view, as the medium-term has finally arrived; in short, China’s trend growth rate has shifted down towards 7 per cent and will likely stay there through 2015.

The bigger question though is whether it will shift downwards again. If that proves to be the case, the unsustainability of China’s debt-fuelled growth will have played an important role. Continue reading »

Will emerging markets ride to the rescue of the developed world? A new report from Ernst & Young suggests they will.

The report, Rapid-Growth Markets Forecast, Summer 2012, says a re-balancing of emerging economies towards domestic consumption, led by China, should reduce their dependence on western export markets while providing a new engine of growth for the world economy – even to the extent of “stabilizing financial markets and economic systems across the world”. Continue reading »