The latest bond failure by a Chinese local government investment arm has rekindled concerns about a group of borrowers whose outlook is closely tied to Beijing’s shifting definition of its implicit backing, Bloomberg News reported. The debt woes faced by Hohhot Economic & Technological Development Zone Investment Development Group, a local government financing vehicle from Inner Mongolia, have sent chills among investors holding other such LGFV bonds, driving prices sharply lower for some.
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A stalemate between the U.S. and other members of the World Trade Organization, including the European Union and China, stands to cripple the organization’s top court, threatening the global body’s survival, the Wall Street Journal reported. On Wednesday the court, called the Appellate Body, will no longer have enough judges to rule on big trade disputes between countries. At stake are international rules negotiated over five decades by the U.S. and Europe to boost global trade.
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As investors brace for the biggest dollar default by a Chinese government-owned borrower in decades, a new breed of state asset managers tasked with cleaning up the mess is gaining equal attention, Bloomberg News reported. Trading firm Tewoo Group Corp., a onetime Fortune Global 500 company that seemed like a good bet for a full official bailout thanks to its state ownership, is struggling to make payments on its $2.05 billion of offshore debt.
China’s Peking University Founder Group is scrambling for funding after failing to repay an onshore bond, three sources told Reuters on Tuesday, which could trigger defaults on billions of the borrower’s U.S. dollar offshore debt, Reuters reported. State-owned Peking Founder told investors on a conference call on Tuesday it had yet to obtain the 2 billion yuan ($284 million) it needs to repay the overdue note, the sources said, although it had a grace period of 15 days to do that.
China is hurtling toward another record year of onshore bond defaults, testing the government’s ability to keep financial markets stable as the economy slows and companies struggle to cope with unprecedented levels of debt, Bloomberg News reported. At least 15 defaults since the start of November have pushed this year’s total to 120.4 billion yuan ($17.1 billion), within a hair’s breadth of the 121.9 billion yuan annual record in 2018, according to data compiled by Bloomberg.
For years, defaults were few and far between in China's corporate bond market. Most investors thought that the Chinese government would never let companies — whether they be state-owned enterprises (SOEs) or private businesses — actually default on their debt, Bloomberg News reported. But times have changed. Defaults by private companies have been rising and there's even a question mark over the implicit government guarantee in debt sold by SOEs.
Two Chinese companies failed to repay bonds worth a combined half a billion dollars on Monday, underscoring rising debt risks in the highly leveraged nation as the economy slows, Bloomberg News reported. Peking University Founder Group was unable to secure sufficient funding to repay a 270-day, 2 billion yuan ($285 million) bond, according to a company filing to the National Interbank Funding Center. Tunghsu Optoelectronic Technology Co. failed to deliver repayment on both interest and principal on a 1.7 billion yuan bond, according to Shanghai Clearing House.
It turns out trade wars are not just painful but also very loud, so much so that they can drown out some fairly consequential things, Bloomberg News reported. One of those is debt. And in the Chinese context, we should note that there is a lot of it and it has increased very quickly. Bloomberg Economics estimates that the country’s total debt ballooned about five-fold in the decade through 2018 to roughly $35 trillion.
The number of Chinese companies failing to make payments will continue to rise in the year ahead as economic growth sputters and the government attempts to rein in support to indebted companies, according to Moody’s Investors Service, Bloomberg News reported. The credit ratings company expects 40-50 new defaults in 2020, up from 35 this year, according to Ivan Chung, head of greater China credit research and analysis at Moody’s. He expects the total value of defaults would be below 200 billion yuan ($28 billion), representing less than 1% of the size of China’s bond market.
Troubled banks in China are struggling to raise funds as concerns over the health of the financial system grow and confidence in state-led bailouts falters. China’s banking system is facing its greatest challenge in nearly 20 years after years of runaway growth and mounting bad debt levels, which have topped 40 per cent of loans at some small lenders, the Financial Times reported.