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Monday, September 11, 2017

China's onshore bond market getting used to defaults?



When I woke up today, I was caught astounded by an article on Bloomberg, relating to the China's bond market that is seeing higher default rates.

Is this the new reality? If it is, I think there's every reasons to be cautious since China is the world's third largest bond market by value. 


Wuyang Construction Group Co., a builder in the eastern province of Zhejiang, defaulted on two put-able notes totaling 1.36 billion yuan ($209 million) last month. Bondholders are now up in arms, claiming in an Aug. 23 filing posted on the Shanghai Stock Exchange’s website that the company didn’t disclose a raft of transgressions in sale documents for the bonds, which were sold in 2015. Three phone calls to Wuyang Constructions’ headquarters in Hangzhou went unanswered, and the company didn’t respond to a fax from Bloomberg News.

The incident is a good example of the teething problems China is seeing as it works to develop its $9 trillion bond market -- made more accessible to offshore investors via a connect with Hong Kong in July.

But it is not the only companies with such an issue. 

A quick look at the data provided by Bloomberg on China's onshore bond market's default since 2014.


Well, the good news is most of the bonds are still hold locally, with only 1.5% of the holdings are foreigners. 

The lack of disclosure especially on critical information has continued to be an issue for debt investors in China. I'm not too sure but this definitely doesn't sound like a good news for a country heavily in debt. 

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