Ever since Beijing allowed Chinese companies (even certain state-owned enterprises) to officially fail for the first time in 2016, and file for bankruptcy to restructure their unsustainable debt loads, it's been a one-way street of corporate bankruptcies, one which we profiled last June in "Is It Time To Start Worrying About China's Debt Default Avalanche", and which culminated with a record number of Chinese onshore bond defaults in 2018, as a liquidity crunch sparked a record 119.6 billion yuan in defaults on local Chinese debt in 2018.
And by the early look of things, 2019 won't be any better after two large Chinese borrowers missed payment deadlines this month according to Bloomberg, setting the scene for even more corporate defaults, and "underscoring the risks piling up in a credit market that’s witnessing the most company failures on record."
The first one was China Minsheng Investment Group, a private investment group with interests in renewable energy and real estate, which failed to make a Feb. 1 bond payment to creditors.
The second name is familiar ever since its woes first emerged in 2018: Wintime Energy, which defaulted last year, also didn’t honor part of a restructured debt repayment plan last week.
What is notable about these two latest payment failures is that both companies are "big borrowers" as Bloomberg put it, and their problems accessing financing suggest that "government efforts to smooth over cracks in the $11 trillion bond market aren’t benefiting all firms
And while so far Beijing has watched from the sidelines, should the falling dominoes accelerate or take down a particularly large piece, China's leadership will have to make a big decision: let the deleveraging process progress, even as it increasingly threatens financial stability, or once again step in and confirm to the world that there is no centrally planned financial system quite like a Chinese financial system.
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