It looks like a colossal accident waiting to happen: China’s first true bond default has laid bare the country’s financial risks just as $400bn in debt comes due this year for cash-strapped local governments.
But a curious thing has happened in recent days. Far from triggering a wave of defaults, the concerns about the Chinese bond market have instead nudged local governments closer to financial safety.
Bonds issued by local government financing companies – long seen as one of the big problems hanging over the Chinese economy – have found favour among domestic investors and brokerages. Credit costs for provinces and cities have declined as a result, making it easier for them to obtain the cash to pay off their maturing debts.
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