China Development Bank is the core policy bank in China. It has more than Rmb 6tn ($984bn) in assets, is wholly owned by the state and is as good for its money as the government itself. So when CDB is forced to cut the size of a proposed bond issue by 60 per cent, as happened this month, you can be sure something is not right in China’s credit markets.
Other respected and credible companies have also been forced to delay or reduce bond issues, or pay more for their money. Take US-listed internet group Baidu. Last year, it sold a bond to US investors that was priced without the extra that emerging market borrowers usually pay. But in recent months, it struggled to get a Chinese bond away.
China’s cost of capital has begun to rise even though the government seems some way from the liberalisation of deposit rates that has held down borrowing costs for so long. Banks must already pay more for funds in the interbank market. Meanwhile, wealth management products (WMPs) – short-term savings products sold mostly by banks to retail and institutional investors – and trust products continue to grow. Both are currently offering better returns than straight corporate bonds to all investors, including banks themselves.