China Corporate Debt Defaults Trigger Concerns of Broader Crisis




A Chinese mining firm that defaulted on its debts this week held an emergency creditors’ meeting on Friday to address potentially “huge credit risks”, as a series of defaults by top-rated state-owned enterprises (SOEs) sent shockwaves through China’s corporate bond market.

Investors have traditionally seen bonds issued by state-owned firms as less risky due to their perceived government backing. But the recent delinquencies triggered a selloff in debt issued by state firms in impoverished provinces, raising fears of a brewing credit crisis.

“Once the credit environment is destroyed, it’s very difficult to rebuild confidence,” wrote Qu Qing, an analyst at Jianghai Securities, highlighting a risk that investors will desert corporate bonds for the perceived safety of Chinese government bonds and policy bank bonds if the situation deteriorates.

The nervousness also spilled into the stock market, where Chinese banking shares fell on concerns they would face increased bad loans.

Shares of Industrial Bank Co. and China Everbright Bank Co. fell more than 3.4 percent on Friday. An index tracking stocks of state-owned enterprises lost 0.8 percent, its fourth day of losses.

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