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China’s Government Is Letting a Wave of Bond Defaults Just Happen

Investors have long assumed the state would step in and help many companies, but that’s no longer a safe bet.

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China’s had another record year of corporate bond defaults. That’s not a crisis. It’s a plan.

A decade ago, defaults almost never happened, but that wasn’t because companies in China were always healthy. It was a reflection of the tightly controlled financial system, where companies were often linked to the government and bonds were largely bought by state-owned lenders. Authorities have often stepped in to ensure that financially troubled enterprises didn’t crash into default, out of concern over social unrest in the event of job losses or missed payroll payments.