In 2020, China recorded 39 businesses having defaulted on bonds with a total loss of nearly 30 billion USD, up 14% compared to 2019. Notably, the value of defaults on the domestic market This will decrease from 142 billion yuan in 2019 to 137 billion yuan in 2020. Meanwhile, the figure for the overseas market has increased from 3.9 billion USD to 8.6 billion USD, respectively.
"The central bank will be more cautious about monetary policy this year," Bloomberg quoted Yuze Li, a credit analyst at China Merchants Securities, as saying.
This position forecasts that the number of businesses having difficulty in capital will increase, the number of defaults will also be 10-30% more than in 2019.
With the economy slowly recovering from the crisis caused by the Covid-19 epidemic, Beijing officials are focusing on easing bad debt in the financial apparatus. This is also a great pressure at the moment for Chinese businesses after months of stagnation due to the blockade.
In the second half of 2020 alone, the number of defaults committed by businesses on the domestic market averaged 47% to 13.6 billion yuan - compared to 9.2 billion yuan in the first half of the year.
Notably, the technology industry is the object with the worst financial health, accounting for 28% of total defaults on the domestic market in 2020, typically the default of Peking University Founder Group. The consumer industry suffered second losses, including the default of Brilliance Auto Group. Third place is the financial industry.
Concerns over the financial health of businesses backed by Beijing’s government are growing, especially after the default of three state-owned companies, including Yongcheng Coal and Electricity Holding Group, Huachen Automotive Group Holdings and home. chip production is funded by Tsinghua University.
On the dollar-listed bond market, the financial sector accounts for about 43% of all defaults, followed by technology and energy. In 2020, for the first time in the domestic bond market, 5 SOEs defaulted, exceeding the record level since 2016.
In the last 3 years alone, Thanh Hai is ranked as the province with the highest default rate, with 19.5%. Followed by Hainan, Liaoning and Ninh Ha Autonomous Region with a default rate of 7%. This figure shows that the areas with weak economic potential and the financial management capacity of local officials are ineffective.
In the overseas market, Chinese investors are turning to "keepwell" bonds - a term that requires domestic companies to commit to keeping their overseas branches - which also issue bonds - from bankruptcy, but no guarantee will be paid to bondholders.
In fact, the parent company often buys back assets or stakes in subsidiaries as a way to support payments arising from overseas bond codes.
According to Nikkei, the new set of regulations on corporate credit bonds announced by the People’s Bank of China (PBOC), the National Development and Reform Commission and the China Securities Regulatory Commission will take effect from May 1, 2021.
Under this regulation, Chinese businesses can issue corporate credit bonds - including non-financial debts, stocks and bonds - in the interbank market and stock exchanges. This will make it harder for private Chinese companies to avoid huge debt bombs.
