Chinese companies are facing a reality check after years of ramping up debt. A deleveraging campaign that President Xi Jinping began in 2016 to curb risks in the nation’s financial markets has cracked down on shadow banking and tightened rules on asset management. As a result, firms are having a tougher time raising new funds to repay existing debt, leading to a record number of bond defaults and government moves to try to alleviate the liquidity crunch, Bloomberg News reported. The worsening economic climate isn’t helping. The problem is big, with the potential to worsen.

Pity the Chinese state-owned bank trying to obey ever-changing instructions from policymakers in Beijing. For years, banks preferred to lend to giant state-owned enterprises — both because of the implicit government guarantee that such debt has traditionally carried, and because SOEs were seen as national champions that deserved support. But now the script is shifting as China’s economy slows, the Financial Times reported.

Another acquisitive Chinese company is wobbling. Less than five years old, China Minsheng Investment Group Corp. has spent more than $4 billion on investments and amassed $34 billion of debt, but recently almost failed to make a bond repayment, Bloomberg News reported. CMIG joins the likes of HNA Group Co. and Anbang Insurance Group Co. in struggling to repay debt after embarking on a spending spree.

China's bad debt managers, whom Beijing hopes to play a key role in resolving financial risks, are in danger of becoming bad credits themselves as the leverage crackdown that fuelled a boom in their business now threatens their own access to funding, the International New York Times reported on a Reuters story. The practice of buying banks' non-performing loans (NPLs) at a discount and recovering them for a profit has grown rapidly in China since 2016.

China’s state planning agency will investigate corporate bond issuers’ ability to repay maturing notes, a sign of Beijing’s concern about financial risks amid a slowing economy and tight liquidity that has made refinancing difficult for many borrowers, the Financial Times reported. Chinese bond defaults reached an all-time high last year, and issuers are facing a wave of maturities in 2019. A series of high-profile defaults in recent weeks have shaken market confidence.

The collapse in China of a complex web of debt guarantees involving several private firms highlights risks in its financial system and opens up a potentially hazardous front for an economy in the grip of its slowest growth in nearly three decades, Reuters reported. It is the last thing Beijing needs as it tries to fight off intensifying pressure on growth from a months-long trade dispute with the United States.

Chinese investors are snapping up the safest assets in the bond market, complicating authorities’ efforts to help revive the economy by directing funds into cash-strapped private firms, Bloomberg News reported. Traders are piling into corporate debt with high credit ratings, and bonds sold by the central government and local authorities, according to data compiled by Bloomberg. Junk notes, many of which are sold by the kind of smaller private companies that officials vowed to support, are falling out of favor; spreads are at the widest in almost seven years.

Two large Chinese borrowers missed payment deadlines this month, underscoring the risks piling up in a credit market that’s witnessing the most company failures on record, Bloomberg News reported. China Minsheng Investment Group Corp., a private investment group with interests in renewable energy and real estate, hasn’t returned money to bondholders that it had pledged to repay on Feb. 1, according to people familiar with the matter. And Wintime Energy Co., which defaulted last year, didn’t honor part of a restructured debt repayment plan last week, separate people said.

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.