China’s offshore corporate bond defaults have risen 28% in the first three quarters 2021 to $7.8bn YoY, with price slumps plaguing China property developers Evergrande, Fantasia and several of their peers. The amount of offshore defaults in 9M2021 have exceeded the total defaults in the entirety of 2020. Onshore defaults by Chinese non-financial companies rose 19% YoY to RMB 98.7bn ($15.5bn) in 9M2021. According to Moody’s, corporate bond defaults are expected to continue to rise in 2022 but remain as a small portion of the total Chinese bond market. This comes amidst the struggle of highly indebted property developers and enterprises to access new funding thanks to the ‘three red lines’ policy by the government, making it more difficult for overleveraged developers to obtain bank loans, limiting funding channels to the bond markets. “These financially weak bond issuers raised large amounts of debt during the past several years, when investors were willing to take on risk in exchange for comparatively high yield,” Moody’s analysts Ivan Chung and Jessie Tung said. They added however, “We believe Chinese authorities will intervene if they see signs that bond defaults will rise significantly, or are likely to trigger systemic risk”.
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