Weak spots are emerging in China's growing debt pile, and high-profile cases are troubling markets. Here are three important developments to watch.
Analysts said cases like these signal how the state's so-called implicit guarantee is changing as the government tries to improve the bond market's quality — weeding out the weaker firms, and allowing for some differentiation within the industry.
For the whole of 2020, bond defaults amounted to 146.77 billion yuan, a huge leap from just six years ago in 2014, according to Fitch. That year, defaults totaled 1.34 billion yuan, and there were no defaults by state-owned firms, the ratings agency said.1. Bond default in a grey area of local government
"Many LGFV are even worse than so-called Zombie companies, in the sense that they could not pay the interest, not mention the principal on their own," Larry Hu, chief China economist at Macquarie, said in a June 25 note. Zombie companies are those that are heavily indebted and rely on loans and government subsidies to stay alive. "They could survive only because of the supports from the governments.
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