China may have to brace for a new wave of bond defaults, S&P says
BEIJING — China's state-directed economy may be creating the conditions for a new wave of bond defaults that could come as soon as next year, according to an S&P Global Ratings report released Tuesday.
It would be the third round of corporate defaults in about a decade, the ratings agency pointed out.
It comes against a backdrop of extremely few defaults in China amid concerns about overall growth in the world's second-largest economy.
«The real thing to watch for policymakers is whether the current directives are creating distorted incentives in the economy,» Charles Chang, greater China country lead at S&P Global Ratings, said in a phone interview Wednesday.
China's corporate bond default rate fell to 0.2% in 2023, the lowest in at least 8 years and far below the global rate of about 2.6%, S&P data showed.
«To a certain extent this is not a good sign, because we see this divergence as something that's not the result of the functioning of markets,» Chang said. «We've seen directives or guidance from the government in the past year to discourage defaults in the bond market.»
«The question is: When the guidance to avoid the defaults in the bond market [ends], what happens to the bond market?» he said, noting that's something to watch out for next year.
Chinese authorities have in recent years emphasized the need to prevent financial risks.
But heavy-handed approaches to tackling problems, especially in the real estate sector, can have unintended consequences.
The property market slumped after Beijing's crackdown on developers' high reliance on debt in the last three years. The once-massive sector has dragged down the economy, while the property sector shows few signs of turning around.
Real estate led the latest wave of
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