The recent spate of bond defaults by Chinese SOEs has created an eerie atmosphere in the Chinese investment market. Previously, investors believed that local governments would always cover the debt of SOEs, but this confidence is wavering.
According to Fitch Ratings, only five Chinese SOEs failed to pay bondholders in the first 10 months of 2020, which is comparable to the number in recent years, according to the Financial Times, before Yongcheng Coal and Power Holding Group Co. defaulted on its bonds on Nov. 10.
In China’s bond market, which is nearly $4 trillion in size, SOEs account for more than half of total bond issuance, said a report by Taiwan‘s Central News Agency. In the week following Yongcheng Coal Power’s default, at least 20 Chinese companies suspended plans to issue a total of 15.5 billion yuan (NT$67 billion) in new bonds, all because of “recent market turmoil.
According to the report, Liu He’s announcement made it clear that the government will not be unconditionally responsible for state-owned enterprises, which has shaken the confidence of many investors. And if this confidence collapses, the situation may become unmanageable.
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