A recent spate of defaults by Chinese state-owned enterprises has unnerved investors, raising questions about the state of China’s credit markets. On Monday, an economist told U.S. financial media that deleveraging will be a renewed focus in China, where defaults are expected to rise in 2021 and state-owned enterprises and local governments will face a significant credit crunch.
On Monday (Jan. 4), Michael Spencer, chief economist and head of Asia-Pacific research at Deutsche Bank, told CNBC’s “Squawk Box Asia” that deleveraging will be a renewed focus in China in 2021, with local governments and state-owned enterprises facing a significant credit crunch.
Spencer said the series of high-profile defaults by Chinese state-owned enterprises over the past few months, with the number of defaults increasing, has become one of the main concerns of domestic and foreign investors and has raised questions about the state of China’s credit market.
CNBC reports that Chinese state-owned enterprises have always been seen as backed and underwritten by the government, and their bonds are seen as safer investments.
Spencer said he expects China’s default rate to rise and that the country’s credit risk will become “increasingly important” to both domestic and foreign investors.
Spencer also warned that the Chinese economy’s “growth momentum is starting to wane.
At the beginning of 2020, China was in a virtual freeze due to the outbreak of the Chinese Communist Party virus. Spencer said, “If you look at the next four quarters, you’ll see that the annual average GDP numbers will be way off because the year-over-year effect in the first half of 2021 is inflated.”
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