China

China is engaged in a charm offensive to lure foreign money into its bond market, which has grown in a short period of time from a minnow to the third largest in the world, after the US and Japan, the Financial Times reported. The opening of the bond market to foreigners is part of a transformation in the international financial system, which is slowly linking up with a Chinese economy that was once walled off behind tight capital controls. It is a crucial step in Beijing’s plan to turn the renminbi into one of the anchor currencies of the global economy.

China’s shadow banking is back in full swing, an unintended side effect of the government’s campaign against financial leverage, which has curbed traditional lending and squeezed bond financing. Data from the central bank Friday showed that off-balance sheet lending surged 754 billion yuan ($109 billion) in March, taking the first quarter’s total increase to a record 2.05 trillion yuan, Bloomberg News reported.

China's new chief banking regulator has started with a bang, issuing a flurry of new policy directives during his first month aimed at the industry's knottiest problems, in line with the government’s focus this year on managing financial risk, the Financial Times reported. The China Banking Regulatory Commission has issued seven policy documents in the past 12 days, in what state news agency Xinhua is calling a “regulatory windstorm”.

Predicting the evolution of corporate debt cycles is always tricky. In China it’s doubly hard—because there are two cycles in process. Most concern about the speedy rise of credit across China’s economy is focused on the sheer scale of corporate leverage, now close to 166% of GDP, The Wall Street Journal reported. Less noticed is that parallel debt cycles in the public and private sector are running at different speeds.

China’s riskiest corporate bonds are looking disproportionately expensive, a worrying sign that investors may have underestimated their risk as a tighter monetary policy and painful industrial restructuring weaken companies’ ability to repay debt, the International New York Times reported.

President Xi Jinping gathered with his economic mandarins in December for their annual strategy meeting at a heavily guarded government hotel. In closed-door sessions, say people familiar with the confab, he made clear what their mandate was for 2017: He would tolerate no wobbliness in the economy. The communiqué coming out of the session singled out one policy objective in particular—keep the yuan stable.

China’s anti-corruption investigators are targeting the country’s top insurance regulator, throwing doubt over an industry that has been behind a wave of blockbuster global deals but has raised concerns about financial risk in the world’s second-largest economy, the International New York Times DealBook blog reported.

The first ever downgrade of a Chinese local-government financing vehicle by an international ratings agency is reigniting concern over the debt-saddled entities, amid angst there could be more cuts to come, Bloomberg News reported. S&P Global Ratings reduced its credit rating on Jiangsu NewHeadline Development Group, a construction services provider and one of the largest financing firms owned by Lianyungang City -- in China’s eastern Jiangsu province -- by one notch to BB Thursday.

China’s so-called bad banks are thriving as alternative lenders, evolving from bad-debt managers into some of the country’s largest financial conglomerates just as margins at the big state-owned banks come under pressure, the Financial Times reported. China’s four centrally controlled asset management companies (AMCs) were set up in 1999 to swallow toxic assets from banks, and have had their assets grow expansively over the past five years.

China’s deleveraging push has racked up the most defaults on corporate bonds ever for a first quarter, and the identity of the debtors is pretty revealing. Seven companies have defaulted on a total of nine bonds onshore so far in 2017, versus 29 for all of last year, according to data compiled by Bloomberg. In a sign of the struggles facing China’s old economic model, most of them depend on heavy industry and construction.