China

As policy makers tighten the liquidity screws in China, what has been a handy window for companies to raise cash could now be closing, Bloomberg News reported. May capped the fourth straight month of contraction in outstanding loans that publicly listed companies got from securities firms through pledging holdings of stock, Moody’s Investors Service data show. While that still left the total, at 1.53 trillion yuan ($240 billion), near a record, it’s been the longest run of declines since the epic 2015 stock-market collapse.

China’s efforts to connect the world’s third-biggest bond market with the international financial system are hitting dual headwinds -- a climb in global borrowing costs, and the country’s own campaign to reduce financial leverage, Bloomberg News reported. The dynamics have contributed to defaults by 12 bond issuers in 2018 through June 4, after 18 for the whole of 2017, according to Fitch Ratings. Firms from JPMorgan Chase & Co. to Fidelity International are warning to prepare for more.

When other acquisitive Chinese groups were insisting they were not an arm of the state, China Energy Reserve and Chemicals Group was making the opposite case: trying to convince bankers and investors it belonged to the government. But the company’s recent default on a payment for a $350m bond, and its withdrawal from a $5.2bn property deal earlier in the year, was a sign that its state backing was not as strong as advertised, the Financial Times reported. The matter is sensitive for investors in Chinese bonds.

For all the talk of China’s mountain of debt, defaults and deleveraging, there’s a chasm nobody is talking about, a Bloomberg View reported. Here’s an alarming and frequently cited statistic: Chinese industrial companies have at least $124 billion of debt maturing over the next two years. Actually, it’s worse. They have another $34 billion of bonds with put options – giving creditors the right to sell back their securities or get a higher coupon – that can be exercised within the next two years. Lenders could be asking for their money back much sooner than companies and investors expect.

Debt collectors in China are harnessing new technologies such as artificial intelligence in a bid to collect on an estimated Rmb1.3tn ($200bn) debt bubble that has formed in the country’s peer-to-peer lending industry, the Financial Times reported. Thousands of online businesses connecting private lenders to people in need of cash sprang up across the country over the past five years, but a spate of scandals has put these lenders in the crosshairs of regulators. Many P2P lenders have been shut down since mid-2017 as lending controls have been implemented and licences required.

After more than two years on the back-burner, there are signs that China is once again focusing on its efforts to increase the yuan’s status in global finance, Bloomberg News reported. The yuan grabbed a record 2.8 percent slice of global payments three years ago, before a crackdown on outflows in the wake of the 2015 devaluation saw that figure shrink to 1.7 percent as of April. These days -- with China’s foreign reserves rising and volatility staying low -- officials have a window to refocus on President Xi Jinping’s quest for a bigger Chinese role in global finance.

China’s fast-growing dollar-bond market is facing a fresh test as investors that counted on a type of credit-protection pledge seldom seen elsewhere find out just what those promises actually mean, Bloomberg News reported. So-called keepwell provisions, disproportionately seen in the offshore Chinese debt market the past several years, are a sort of gentleman’s agreement - a commitment to maintain an issuer’s solvency which stops short of a payment guarantee from the parent company. Now, two issuers of debt with keepwell provisions, China Energy Reserve & Chemicals Group Co.

China’s banks, scrambling to adjust to the government’s deleveraging campaign, are likely to add to pressures on the corporate bond market as they shed more of their massive note holdings and de-risk their balance sheets, Bloomberg News reported. Further payment problems are likely in a market that has already seen at least 14 corporate bond defaults this year, according to Logan Wright, Hong Kong-based director at research firm Rhodium Group LLC.

When top Chinese business leaders and officials face charges, they usually have one option: Go quietly. The tycoon at the center of one of China’s biggest cases of financial fraud seems to be taking a different path, the International New York Times reported. A lawyer representing Wu Xiaohui, a businessman who rose to prominence in part through his company’s purchase of the Waldorf Astoria hotel in New York, said Wednesday in a social media post that Mr. Wu would appeal a lengthy prison sentence for bilking investors.

Czech financial firm J&T said on Friday it had struck a deal with Chinese state conglomerate CITIC Group to settle debts owed by troubled Chinese company CEFC, ending a dispute, Reuters reported. Privately-held CEFC has spearheaded a Chinese acquisition drive in the Czech Republic, championed by Czech President Milos Zeman, which includes a range of assets including engineering, brewing and real estate as well as a soccer club and an airline.