China

For China’s ruling Communist party, its foreign exchange reserves are a symbol of national strength and are a crucial buffer against economic shocks. So the alarming announcement that forex reserves had fallen below $3tn in January marked a shift in political faultlines that is only being felt this summer, the Financial Times reported. As more than $1tn left the country over the previous 18 months amid a flurry of large overseas acquisitions, a sense of crisis grew within the party. Technocrats in Beijing had already prepared the ground to take action.

Chinese courts handled more than 4,700 bankruptcy cases in the first seven months of 2017, up "steadily" on the same period of 2016 as Beijing stepped up its campaign against 'zombie firms', a senior official with the judiciary said on Thursday. "The difficulties of launching a bankruptcy case have been effectively eased," He Xiaorong, a senior director at China's Supreme People's Court, told a news briefing.

Chinese commodities trader COFCO has asked to participate in an auction in Brazil where a sugar mill owned by India's Shree Renuka Sugars Ltd will be sold as part of an in-court debt restructuring, according to court documents seen by Reuters on Tuesday. COFCO already owns four sugar and ethanol plants in Brazil capable of processing a combined 15 million tonnes of cane per year. The company looked at other potential targets last year, but said prices were too high, Reuters reported.

Chinese companies battling to cope with the government-induced tightening in funding markets are bracing themselves for the next shoe to fall: a wave of early bond redemptions. The nation’s businesses sold about 65 percent of all corporate bonds with put options worldwide, at 3.9 trillion yuan ($580 billion), Bloomberg News reported. Creditors holding some 2 trillion yuan of mainland notes will be able to exercise those options in the next two years, forcing issuers to either increase interest payments or redeem the debt early.

In China, taxi rides aren’t just a form of transportation any more. They’ve also become useful for bond buyers doing due diligence. Dining out at restaurants is also helpful. It’s all part of a boom in field trips by market participants coming to grips with a new reality in China: the potential for bond defaults. After decades when authorities effectively provided blanket assistance to keep troubled companies from going under, the Communist leadership’s focus on shuttering unproductive assets has upended the market, Bloomberg News reported.

Doomsayers have plenty to work with in China. The country’s rapid buildup of debt -- reaching approximately 260 percent of GDP, from 160 percent less than a decade ago -- seems almost guaranteed to herald a financial crash or at least a major correction, quite likely followed by years of stagnation, a Bloomberg View reported. If the world’s second-biggest economy ultimately defies the doubters, though, this may well be seen as the year things turned around. Consider this: China is on track to see its best nominal GDP performance since 2011, even as credit growth remains moderate.

China’s bond market may have had a tricky year, with rising borrowing costs and a downturn in new issuance. But there’s one apparent bright spot—fewer bonds are going bad. The number of defaults on Chinese corporate bonds dropped to just 23 in the first half of the year, on debt worth a combined 18.7 billion yuan ($2.8 billion)—a drop in the ocean in a $4.9 trillion market, The Wall Street Journal reported. That’s down from 38 bonds worth 23.7 billion yuan in the first half of 2016, according to data provider WIND Info.

In a related story, Bloomberg News reported that China’s deleveraging campaign is taking on its toughest target yet: the public sector itself. While up to now policy makers have focused on a build-up of liabilities at smaller banks and big private-sector companies, President Xi Jinping has made clear that local government authorities and China’s behemoth state-owned enterprises too must restrain borrowing. Xi’s comments at a top financial-regulatory gathering last weekend were the latest signal of determination to head off any future destructive debt-bubble deflation.

More than 7 million Venezuelans went to the polls to vote against President Nicolas Maduro last weekend. But the more consequential opinion on Maduro's future may belong to China, Venezuela's biggest creditor and one of the few likely sources of funds needed to avert a possible default later this year, a Bloomberg View reported. The unofficial referendum, which was organized by the opposition, showed the depth of popular discontent with Maduro's plans to rewrite the constitution and enshrine himself in office. Turnout, at more than a third of registered voters, far exceeded expectations.

China’s economy grew faster than expected in the second quarter, putting the nation on track to meet its growth target this year and giving backing to officials in their campaign to corral oncoming financial risk, Bloomberg News reported. Data showing that the world’s second-largest economy expanded 6.9 percent in the second quarter, matching the pace from the first three months, was released hours after the Communist Party’s People’s Daily newspaper warned of potential "gray rhinos" -- highly probable, high-impact threats that people should see coming, but often don’t.