Risk Watch: China Bond Defaults in 2018 Exceed $648 Million

Four Chinese companies defaulted on over 41.09 billion yuan (about $648 million) worth of bonds in first six weeks of 2018, according to data from Shanghai-based financial information services company Wind.

The companies are Dalian Machine Tools Group, Dandong Port Group, Bright Oceans Corporation, and Sichuan Coal Industry Group Co., Ltd.

Our take: China’s debt crisis is very severe, and there has been a continuous stream of domestic bond defaults in recent years.

Meanwhile, Beijing has accelerated deleveraging reforms since the United States rolled out several pro-business financial policies in 2017. Also, the banking regulatory commission and the central bank strictly supervising the issuance of short-term loans and the funding of “channel-type businesses” has led to liquidity contraction.

The above phenomena suggest that China’s financial companies are finding it hard to stick to the usual practice of taking on new debt to pay old loans. Even if the companies can secure new funds, the cost of paying off the debt would be prohibitive.

We believe that 2018 will see even more cases of companies defaulting on bonds.