A series of bond defaults in north-east China is exposing creditors’ frustration at the lack of a transparent process for resolving bad debt as cash-strapped local governments step back increasingly from taxpayer bailouts.
President Xi Jinping’s push for “supply-side reform” is centred on cutting excess capacity and paring back credit to so-called zombie companies, many of them state-owned. That is setting up conflicts between creditors and local governments that rely on state factories for employment and tax revenue.
Dongbei Special Steel, majority-owned by Liaoning province, has defaulted seven times on bond principal and interest payments worth Rmb4.8bn ($715m). In March its chairman was found dead.
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