As China suffers a rise in company defaults and an increase in corporate downgrades, the need for a credit default swap market in the country has become more pressing. And now it looks likely the People’s Bank of China will give the hedging scheme the go-ahead in coming months.
This is the second time interested parties have tried to establish the market, which would allow participants to buy and sell credit insurance that pays out if a Chinese company fails to make payments on its debts. The fact that it is now likely to succeed is a sign of how much has changed in China.
In 2010, the little known National Association of Financial Market Institutional Investors first attempted to introduce the product, which allows banks and other investors to hedge the risk of default. But the market never took off for a variety of reasons.