Date
11 December 2017
Credit Suisse's Tao Dong expects a surge in Chinese bond defaults.
Credit Suisse's Tao Dong expects a surge in Chinese bond defaults.

Economist warns of default tide in China bond market

China’s debt market could see at least one default every week as soon as next month and such defaults could climb to five to ten cases per week in a few months, according to a private-sector economist.

Credit Suisse Group AG chief Asia economist Tao Dong warned that risks are rising in the mainland as many debts become due, RTHK reported.

“There will be a total of 3.5 trillion yuan (US$560.77 billion) of local debts falling due, of which 2.3 trillion yuan are from trust funds which are… [exposed] to infrastructure projects; this is expected to be the biggest source of China default risk,” he was quoted as saying.

Tao is pessimistic on China’s short- and medium- term economic trend and said the credit cycle is deteriorating. Liquidity will become tight and credit risk is unavoidable, he said.

Shenzhen-listed Shanghai Chaori Solar Energy Science & Technology Co. said in early March that it could not fully meet an 89.8 million yuan interest payment, in what marked China’s first corporate bond default. The failure dented investors’ expectation of “guaranteed” return on fixed-income products.

In another case, Baoding Tianwei Baobian Electric Co. (600550.CN) had its bonds suspended from trading on the stock exchange after incurring losses two years in a row. The securities were issued in 2011 and the company posted a 5.23 billion net loss in 2013.

The bonds were banned from being used as collateral for loans. The seven-year instruments have a combined face value of 1.6 billion yuan and carry annual interest rate of 5.75 percent.

–Contact HKEJ at [email protected]

AM/JP/RC

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