China

Some global investors with an eye on China act as if trade friction between the mainland and the US is the only factor worrying markets. That has especially been the case for investors in China shares. But investors also need to pay attention to the dynamics of corporate credit in China — and not just the last salvo between the two competing powers, the Financial Times reported in a commentary. The fact is, the country is in the grip of a credit crunch.

Chinese executives are sounding warning bells over the world’s second-largest economy. At least 20 companies, including China Life Insurance Co. and Chongqing Changan Automobile Co., told investors late Tuesday that full-year earnings would fall well short of expectations, Bloomberg News reported. Reasons they cited included the country’s economic slowdown, as well as recent changes to accounting rules and the equity market’s $2.3 trillion rout last year, the world’s biggest loss of value. China Life fell as much as 4.3 percent in onshore trading Wednesday.

When Ofo launched in Beijing in 2015, it had seemingly everything going for it: a brilliant idea, a stash of cash and impeccable Communist party connections. But just four years later, the bike-sharing service has been reduced to empty offices, graveyards of disused bright yellow bikes and virtual queues of disenchanted customers demanding their deposits back, the Financial Times reported. Venerable investors, including tech giant Alibaba, are braced for writedowns and the company’s founder, Dai Wei, has warned that bankruptcy is on the horizon.

After sliding for six straight years, borrowing costs of Chinese companies from the offshore syndicated loan market are expected to grow in 2019 as their own funding rates rise and defaults from the country surge, according to a Bloomberg survey, Bloomberg News reported. With Chinese offshore syndicated loan costs still near a decade-low, lenders are seeking higher pricing to cushion margins squeezed by rising competition. Such demand is getting louder as default risks deepen amid a faltering economy and trade tensions with the U.S.

In the latest sign of turmoil in China’s once booming peer-to-peer lending sector, around 80 investors in failed lender Xinhehui protested outside the Hangzhou headquarters of a related company on Tuesday, demanding a $330 million bailout, Bloomberg News reported. The investors voiced their fury and scuffled with police at the entrance to the headquarters of Meidu Energy Corp., which owns about a third of the failed lender.

A growing risk of debt distress in low-income nations has made it crucial that countries agree how any bailout burden should be shared, a senior IMF official warned on Friday, the Financial Times reported. The comments, in a blog by Martin Muehleisen, director of the IMF’s strategy, policy and review department, reflect deepening concern over a build-up of opaque Chinese lending to developing countries.

Shares in Jiayuan International, a Chinese property developer, collapsed in late trading in Hong Kong on Thursday, underlining investors’ unease over a sector that is staggering under vast debts just as the world’s second-biggest economy slows. Analysts said that the stock, which closed down 81 per cent after a chaotic day’s trading that wiped more than $3bn from its market capitalisation, was engulfed by concern that Jiayuan would struggle to repay a $350m bond that was due this week.

A company that recorded one of China’s biggest corporate bond defaults is emerging as the most popular name among the nation’s stock traders in 2019, Bloomberg News reported. Wintime Energy Co., a coal miner based in China’s northern Shanxi province, has surged 60 percent this year to lead the benchmark CSI 300 Index. Its shares have rallied as investors wait for it to announce details on restructuring efforts, even as it said it sees uncertainty over repaying a 1 billion yuan ($148 million) bond due next week.

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, the Financial Times reported. Last year’s Rmb151bn ($22.3bn) in defaults made it a banner year for credit events in the domestic corporate bond market.

Two weeks into 2019, five Chinese companies are already likely to default on 3.5 billion yuan (US$446.25 million) worth of debt, after a record US$17 billion default wave took the country by storm in 2018 amid a worsening economic slowdown and soaring refinancing costs facing the cash-starved private sector, the South China Morning Post reported.