China

How far will China’s leaders go to prevent an equity bubble from forming? It’s becoming a key question for investors as mixed signals produce the wildest market in years, Bloomberg News reported. Traders are hanging on every word out of Beijing for clues on how the government may want to manage this year’s world-beating rally. The new securities regulator chairman -- who has played a leading role in stoking risk appetite -- just downplayed the significance of last week’s rating cut, calling it “very normal” even though the market’s reaction showed otherwise.

After record defaults on China’s bonds, there’s now record interest in trading the country’s distressed debt, Bloomberg News reported. An arm of the central bank that runs the biggest bond-trading platform last month conducted the third auction of distressed securities since July. This one had the biggest participation yet, spanning 43 institutions. While prices of the trades were published by the China Foreign Exchange Trade System, the counterparties’ names were kept secret to maximize deals.

Bets on beaten-down Chinese distressed bonds could pay off if the nation persists with its credit easing and there’s a sustained rally in the domestic stock market, according to an Asia-based hedge fund that manages $3.5 billion, Bloomberg News reported. Distressed dollar bonds from Chinese issuers have had their best start to a year since 2012. A strategy that includes investing in these notes “could generate out-sized returns” if an improving economy and share gains help investors recover more money from troubled debt, said Kevin Wu, a portfolio manager at Pinpoint Asset Management.

China’s biggest default scares of 2019 have taken bondholders on some wild rides, underscoring both the risks and the opportunities for investors as more of the nation’s companies struggle to repay debt, Bloomberg News reported. At least three large Chinese borrowers -- Qinghai Provincial Investment Group Co., China Minsheng Investment Group Corp. and Beijing Orient Landscape & Environment Co. -- missed bond-payment deadlines last month only to come up with the cash shortly thereafter.

The developing world could be heading towards a new debt crisis. Public debt in emerging markets now averages 50 per cent of gross domestic product, the highest level since the 1980s. More than 80 per cent of developing countries have increased their public debt in the past five years, the Financial Times reported in a commentary. The number of developing countries whose public debt level is rated as “unsustainable” or “high-risk” is now 32, more than double the number in 2013. Most of the media’s attention has focused on Chinese loans that add to developing country debts.

Investors are at it again, sorting through the heap of China’s credit data. Last month’s aggregate social-financing numbers, released Sunday, show the flow of new credit in (and around) the financial system fell 41 percent in February from a year earlier, a Bloomberg View reported. Retail loans posted their largest monthly drop on record. Companies continued to struggle with working-capital financing; bonds were the main channel of funding. Looking for signals of economic recovery in such noisy data is a fool’s errand. Just a month earlier, the same figure surged 51 percent.

China’s premier said today that his government would respond to an economic slowdown by cutting taxes, easing burdens on the private sector and giving markets a bigger role, Keith Bradsher and Chris Buckley of the NYT write. 2019 is a “crucial year” for China’s economy, Premier Li Keqiang, the second-ranking official in the country after President Xi Jinping, said at the opening of the National People’s Congress in Beijing this morning.

Probably the single biggest geopolitical issue for the EU right now, and especially for Germany, is future relations with China, the Financial Times reported. The two countries do have a lot in common. Both are export-driven economies with large external savings surpluses. But Germany’s economic strategy is not nearly as consistent. The German political preference is to reduce public debt. Yet the country’s biggest problem is falling behind in the technological race.

A Chinese state-owned enterprise from the country’s remote north-west has failed to repay a US dollar bond in Hong Kong, the first offshore default in 20 years and the latest sign investors can no longer rely on Chinese authorities to bail out state groups, the Financial Times reported.

China has met its target for reducing debt levels but will keep cracking down on riskier types of financing to contain risks to its financial system, the banking and insurance regulator said on Monday, urging banks to step up lending to smaller companies, Reuters reported. Concern about China’s debt is rising again as Beijing ramps up support for a slowing economy. New bank loans hit a record in January despite increasing bad loans and record defaults in 2018.