China Firms Went Deep in Debt. Here Come the Defaults

Chinese companies are facing a reality check after years of ramping up debt. The deleveraging campaign that President Xi Jinping began in 2016 to curb risks in the nation’s financial markets has cracked down on shadow financing and tightened rules on asset management. As a result, firms are having a tough time raising new funds to repay existing debt, leading to a record amount of bond defaults this year.

There have been about 33.3 billion yuan ($4.9 billion) in corporate bond defaults so far this year, data compiled by Bloomberg show. That already exceeds the full-year record of 30 billion yuan, set in 2016. These include nine private and 25 public offerings. Strains are set to get worse if the trends of credit-rating companies are anything to go by -- agencies including Dagong Global Rating Co. have been downgrading firms by an unprecedented margin.