Chinese corporate bonds set for another wave of defaults

Chinese private companies may face an even more difficult ride in the domestic bond market in 2019 as billions of renminbi in maturing issuance conspire with reduced risk appetite, threatening an even bigger wave of defaults. 

Last year’s Rmb151bn ($22.3bn) in defaults made it a banner year for credit events in the domestic corporate bond market. Ordinarily, this would be welcomed: the first renminbi corporate bond default was as recent as 2014 and was a watershed moment for regulators, who had previously chosen to underpin moral hazard rather than recognise failure. However, nearly 90 per cent of the defaulted paper in 2018 was issued by private sector companies, reflecting how much they have been disproportionately hurt by tightening credit conditions.