Could this the first sign of trouble on the horizon for China!
Will the doomsday theorists be vindicated in their prediction of an out-of-control credit creation process that has the potential to blow up. It is universally accepted that China has created too much indebtedness and at too faster a rate.
Last friday Shanghai Chaori Solar Energy Science & Technology Co. failed to make an 89.8 million yuan ($A16.1 million) interest payment.
Christopher Lee, managing director of corporate ratings for Greater China at Standard & Poor’s in Hong Kong said “The Chaori default goes to show the government will begin to let the market decide the fate of weak borrowers. This test case indicates the government is addressing the moral hazard issue,”
He also said that the “Incidence of defaults will likely be incremental but controlled,” he said, nominating metals and mining, shipbuilding and materials as the key sectors with high default risks.
Beijing appears not to have been criticised for not rescuing the solar panel company. This is not surprising. The missed payment crystallises the real risk that is the likelihood of default in the $US1.4 trillion corporate bond market.
Is this an isolated event or a sign of more to come.
Some analysts have suggested that the latest default could be China’s “Bear Stearns moment”. The analysts were obviously referring to the July 2007 disclosure of problems at two Bear Stearns subprime hedge funds – being an event that prompts a reassessment of the risk position.
The analysts concluded by saying “We doubt that the financial system in China will experience a liquidity crunch immediately because of this default but we think the chain reaction will probably start.”
Only time will tell whether the latest default will lead to the chain reaction that is additional defaults in the China corporate bond market. What is clear is that this latest default will prompt investors into reassessing the China credit position.
China’s 1st Ever Bond Default – its happening
Could this the first sign of trouble on the horizon for China!
Will the doomsday theorists be vindicated in their prediction of an out-of-control credit creation process that has the potential to blow up. It is universally accepted that China has created too much indebtedness and at too faster a rate.
Last friday Shanghai Chaori Solar Energy Science & Technology Co. failed to make an 89.8 million yuan ($A16.1 million) interest payment.
Christopher Lee, managing director of corporate ratings for Greater China at Standard & Poor’s in Hong Kong said “The Chaori default goes to show the government will begin to let the market decide the fate of weak borrowers. This test case indicates the government is addressing the moral hazard issue,”
He also said that the “Incidence of defaults will likely be incremental but controlled,” he said, nominating metals and mining, shipbuilding and materials as the key sectors with high default risks.
Beijing appears not to have been criticised for not rescuing the solar panel company. This is not surprising. The missed payment crystallises the real risk that is the likelihood of default in the $US1.4 trillion corporate bond market.
Is this an isolated event or a sign of more to come.
Some analysts have suggested that the latest default could be China’s “Bear Stearns moment”. The analysts were obviously referring to the July 2007 disclosure of problems at two Bear Stearns subprime hedge funds – being an event that prompts a reassessment of the risk position.
The analysts concluded by saying “We doubt that the financial system in China will experience a liquidity crunch immediately because of this default but we think the chain reaction will probably start.”
Only time will tell whether the latest default will lead to the chain reaction that is additional defaults in the China corporate bond market. What is clear is that this latest default will prompt investors into reassessing the China credit position.