China

China credit spreads hit their widest level in nearly two years this week following new regulations that undermined long-held assumptions about implicit guarantees on debt linked to local governments, the Financial Times reported. Chinese localities have long used arm’s length local government financing vehicles (LGFVs) to skirt restrictions on direct fiscal borrowing and to finance infrastructure, contributing to a surge in economy-wide debt since 2008.
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In the event of a shock to China’s economy, problems are likely to emanate from a set of small banks with poor financials and a loan book exposure to China’s weakest provincial economies, the Financial Times reported in a commentary. In the wake of the global financial crisis, China saw an explosion not only in the level of debt in the economy, but also in the development of complex and opaque shadow banking structures.
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China is setting up a special court in Shanghai to deal with the complex financial cases that are rising apace with the deepening of the country’s financial system, The Wall Street Journal reported. The Shanghai Financial Court is expected to start operations by the end of August after Chinese lawmakers on Friday gave their approval. The court will merge special financial tribunals in the current Shanghai court system that have handled a spiraling number of finance-related civil cases—179,000 last year, after rising an average of 51% each year since 2013—officials said.
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A Chinese property developer whose owner bought a stake in SeaWorld Entertainment Inc. is piling up overdue loans worth hundreds of millions of dollars, as a government campaign to control debt starts to squeeze China’s property sector, The Wall Street Journal reported. Zhonghong Holding Co. disclosed in a regulatory filing Monday that it defaulted on more than 1.1 billion yuan in borrowings, doubling in the past five weeks a pile of overdue debt that totaled 2.27 billion yuan ($360 million).
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HNA Group Co.’s bonds are rebounding as the Chinese conglomerate steps up asset sales. But its debt remains large despite efforts to pay it down, prompting some observers to recommend selling the notes. HNA and its subsidiaries face record bond repayments in the second half. That puts even more of a focus on the group’s total debt, which rose to at least 637.5 billion yuan ($101 billion) by November, as it releases results as soon as this week, Bloomberg News reported.
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How bad would liquidity have to get for one of China’s largest companies to dump about $13 billion in assets in less than four months? Investors may find out and get a sense of whether the disposals are enough when debt-laden HNA Group Co., the once-high-flying conglomerate, releases its results as soon as this week, Bloomberg News reported. The 2017 annual report will provide the most extensive details yet of HNA’s financial distress before it began offloading property from Hong Kong to New York, and selling shares in companies from Hilton Worldwide Holdings Inc. to Deutsche Bank AG in 2018.
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Two Chinese groups have renewed their interest in buying a majority stake in National Insurance, Greece’s largest insurer, after a €718m sale agreed with Calamos-Exin, a US-Dutch partnership, collapsed last month, the Financial Times reported. Fosun Investment and Gonbao Investment, the second- and third-ranked bidders, “have returned to the reopened sale process” said one source close to the situation.
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Chinese prosecutors indicted the country’s former chief insurance regulator on charges of abusing his power and taking bribes, a year after he was fired amid concerns the industry’s sizzling expansion had saddled the financial system with risk, The Wall Street Journal reported. Xiang Junbo, whose firing last April underscored the severity of a shake-up in China’s financial sector, faces charges that also include using his positions to promote the interests of others, according to a statement from the nation’s top prosecutors office Monday. Specifics of the allegations against Mr.
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China will further overhaul its bloated state enterprises and push for mergers in sectors such as power and coal, which are plagued by zombie firms, bankruptcy and debt defaults, according to the head of the agency that oversees state assets valued at $26 trillion, Bloomberg News reported. "Some of the central state-owned enterprises in certain industries are too fragmented and have low efficiency," said Xiao Yaqing, chairman of the State-Owned Assets Supervision and Administration Commission, referring to SOEs directly regulated by the central government.
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Investors in local-currency Chinese corporate bonds need to be on alert this year, with record maturities and a government crackdown on debt increasing the risk of more defaults, Bloomberg News reported. There were six defaults on bonds in the first quarter, the most since the April-June period of last year, and investors and analysts are predicting more as interest rates rise and China clamps down on excessive borrowing. The tighter financing environment is hitting smaller private-sector firms hardest, as they haven’t benefited from capacity cuts.
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