Budapest Post

Cum Deo pro Patria et Libertate
Budapest, Europe and world news

China’s bond market stress creates US$26 billion headache as private firms face unprecedented funding squeeze

China’s bond market stress creates US$26 billion headache as private firms face unprecedented funding squeeze

China’s private firms have failed to raise enough fresh funds to repay maturing debt in first deficit since records began. Elevated borrowing costs have produced shocking delinquencies even among state-owned enterprises in recent months

China’s credit market stress is creating a 185 billion yuan (US$26.4 billion) headache for the nation’s private enterprises as they face the worst funding squeeze in more than two decades amid an economic slowdown.

The companies, regarded as the pillar of the world’s second-largest economy, have raised 1.5 trillion yuan from onshore bond sales this year through December 18, according to data provider Wind, failing to match the 1.69 trillion yuan needed to repay maturing debt.

With less than two weeks of working days to the calendar, that is likely to mark the first annual refinancing shortfall since Wind began tracking the market in 1996. That compares with surpluses of 41 billion yuan in 2018 and 652 billion yuan in 2017.

The crunch reflects the fallout from years of state deleveraging campaign to pre-empt a market implosion following years of debt binge. The clampdown has fanned concerns about rising defaults when economic growth is weakening amid a costly trade war with the US.

“Net fundraising by private firms began to trend downward since 2017 as Beijing started the deleveraging campaign” and tightened other funding loopholes, Citic Securities said in a note published on Monday. Companies in the property, industrial and material industries are among the worst affected, analysts Ming Ming and Li Han wrote, citing persistently high borrowing costs.


China's credit crunch

Net capital raised by private firms in onshore bond market (bn yuan)

China’s private enterprises, which account for over 60 per cent of China’s gross domestic product, have produced some shocking delinquencies this year, including those from smokestack industries in Shandong province. In a recent case, Tunghsu Optoelectronic Technology missed three bond payments in a month.

Punitive refinancing costs have also forced companies into undocumented borrowings from their owners or the opaque shadow financing channels.

On average, they have been paying more than 300 basis points above the cost for state-owned China Development Bank in the 12 months through September, according to Citic Securities. The spread was only around 210 basis points at the start of 2018.

In contrast, state-owned enterprises have been largely insulated, according to Wind data. They have raised 16.9 trillion yuan this year, a 7 per cent increase over 2018, and more than the 13.1 trillion yuan of maturing debt. In a rare instance, however, state-owned Peking University Founder Group has missed bond payments.

The financing gap may pose a problem for offshore investors who have bought some of the companies’ foreign-currency debt in recent years. Chinese companies have US$145 billion of bond principals coming due in 2020, almost treble the amount this year, according to Wind data.

“It will be a challenge for the companies to figure out how to ensure redemption,” said Frank Zheng, head of international fixed income at China Asset Management, one of the country’s biggest money managers.

While some companies such as Tewoo Group and Xiwang Group have recently upset the market with non-payments, Zheng believes the risk is manageable.

Following state directives in 2017 that barred offshore investments in areas such as real estate and sports clubs, Chinese companies have dialled back mergers and acquisitions in overseas markets in the past two years.

The slower outbound M&A deals means their debt troubles did not grow larger at the least, Zheng said. He is overall confident that default risks are manageable as the market has priced in potential delinquencies. Looser monetary policy could also ease borrowing costs, he added.

In the onshore bond market, however, the nation’s private enterprises may take longer to recover. Their financing conditions have barely improved this year despite Beijing’s repeated vow of support, Citic Securities said in its report.

“It will be a long and tough road to relieve their (funding) troubles,” it added.

AI Disclaimer: An advanced artificial intelligence (AI) system generated the content of this page on its own. This innovative technology conducts extensive research from a variety of reliable sources, performs rigorous fact-checking and verification, cleans up and balances biased or manipulated content, and presents a minimal factual summary that is just enough yet essential for you to function as an informed and educated citizen. Please keep in mind, however, that this system is an evolving technology, and as a result, the article may contain accidental inaccuracies or errors. We urge you to help us improve our site by reporting any inaccuracies you find using the "Contact Us" link at the bottom of this page. Your helpful feedback helps us improve our system and deliver more precise content. When you find an article of interest here, please look for the full and extensive coverage of this topic in traditional news sources, as they are written by professional journalists that we try to support, not replace. We appreciate your understanding and assistance.
Newsletter

Related Articles

0:00
0:00
Close
Altman Says GPT-5 Already Outpaces Him, Warns AI Could Automate 40% of Work
Russian Research Vessel 'Yantar' Tracked Mapping Europe’s Subsea Cables, Raising Security Alarms
Global Cruise Industry Posts Dramatic Comeback with 34.6 Million Passengers in 2024
U.S. Demands Brussels Scrutinize Digital Rules to Prevent Bias Against American Tech
Private Equity’s Fundraising Surge Triggers Concern of European Market Shake-Out
Tokyo’s Jimbōchō Named World’s Coolest Neighbourhood for 2025
European Officials Fear Trump May Shift Blame for Ukraine War onto EU
The Personality Rights Challenge in India’s AI Era
Italy Considers Freezing Retirement Age at 67 to Avert Scheduled Hike
Italian City to Impose Tax on Visiting Dogs Starting in 2026
Study Finds No Safe Level of Alcohol for Dementia Risk
Trump Says Ukraine Can Fully Restore Borders with NATO Backing
Europe Signals Stronger Support for Taiwan at Major Taipei Defence Show
Germany Weighs Excluding France from Key European Fighter Jet Programme
Cyberattack Disrupts Check-in and Boarding Systems at Major European Airports
Björn Borg Breaks Silence: Memoir Reveals Addiction, Shame and Cancer Battle
When Extremism Hijacks Idealism: How the Baader-Meinhof Gang Emerged and Fell
JWST Data Brings TRAPPIST-1e Closer to Earth-Like Habitability
Trump Orders $100,000 Fee on H-1B Visas and Launches ‘Gold Card’ Immigration Pathway
France’s Looming Budget Crisis and Political Fracture Raise Fears of Becoming Europe’s “Sick Man”
Three Russian MiG-31 Jets Breach Estonian Airspace in ‘Unprecedentedly Brazen’ NATO Incident
European manufacturers against ban on polluting cars: "The industry may collapse"
Turkish car manufacturer Togg Enters German Market with 5-Star Electric Sedan and SUV to Challenge European EV Brands
Christian Brueckner Released from German Prison after Serving Unrelated Sentence
World’s Longest Direct Flight China Eastern to Launch 29-Hour Shanghai–Buenos Aires Direct Flight via Auckland in December
New OpenAI Study Finds Majority of ChatGPT Use Is Personal, Not Professional
The conservative right spreads westward: a huge achievement for 'Alternative for Germany' in local elections
Pope Leo Warns of Societal Crisis Over Mega-CEO Pay, Citing Tesla’s Proposed Trillion-Dollar Package
Poland Green-Lights NATO Deployment in Response to Major Russian Drone Incursion
U.S. and China Agree on Framework to Shift TikTok to American Ownership
Le Pen Tightens the Pressure on Macron as France Edges Toward Political Breakdown
Czech Republic signs €1.34 billion contract for Leopard 2A8 main battle tanks with delivery from 2028
Penske Media Sues Google Over “AI Overviews,” Claiming It Uses Journalism Without Consent and Destroys Traffic
Indian Student Engineers Propose “Project REBIRTH” to Protect Aircraft from Crashes Using AI, Airbags and Smart Materials
One in Three Europeans Now Uses TikTok, According to the Chinese Tech Giant
Could AI Nursing Robots Help Healthcare Staffing Shortages?
NATO Deploys ‘Eastern Sentry’ After Russian Drones Violate Polish Airspace
The New Life of Novak Djokovic
German police raid AfD lawmaker’s offices in inquiry over Chinese payments
Volkswagen launches aggressive strategy to fend off Chinese challenge in Europe’s EV market
France Erupts in Mass ‘Block Everything’ Protests on New PM’s First Day
Poland Shoots Down Russian Drones in Airspace Violation During Ukraine Attack
Apple Introduces Ultra-Thin iPhone Air, Enhanced 17 Series and New Health-Focused Wearables
Macron Appoints Sébastien Lecornu as Prime Minister Amid Budget Crisis and Political Turmoil
Vatican hosts first Catholic LGBTQ pilgrimage
Apple Unveils iPhone 17 Series, iPhone Air, Apple Watch 11 and More at 'Awe Dropping' Event
France joins Eurozone’s ‘periphery’ as turmoil deepens, say investors
France Faces New Political Crisis, again, as Prime Minister Bayrou Pushed Out
Nayib Bukele Points Out Belgian Hypocrisy as Brussels Considers Sending Army into the Streets
France, at an Impasse, Heads Toward Another Government Collapse
×