In a noticeable break with the past, Asia Unhedged notes that China is actually allowing a state-owned company to default on its onshore bonds. Granted, a company going bankrupt is in itself little cause for celebration, and typically causes much gnashing of teeth. But this move shows the government is willing to let market forces decide the fate of one of its own, rather than official edict.

Baoding Tianwei Group Co., a power-transformer maker, became the first state-owned company to default when it failed to pay bond interest on Tuesday, according to a statement posted to, the China Foreign Exchange Trade System, reported Bloomberg. The unit of central government-owned China South Industries Group Corp. needed to pay 85.5 million yuan ($13.8 million) of interest on the 1.5 billion yuan of 5.7% notes due April 2016, according to Chinamoney.

Before Baoding, only private-sector companies had defaulted. However, in the wake of Premier Li Keqiang’s pledge to subject Asia’s biggest economy to market forces, analysts expect a wave of default by state-owned enterprises in the country’s domestic bond market. On Monday, Kaisa Group Holdings Ltd. became the first Chinese developer to default on its U.S. currency debt.

“Our company suffered huge losses in 2014 and the debt to asset ratio surged quickly,” Baoding Tianwei said in a written statement. “Our company has lost financing ability and suffered from a capital shortage. We can’t raise enough money to repay interest, despite all the efforts we have made.”

According to the statement, Baoding Tianwei lost 10.14 billion yuan in 2014. On April 3, it said it had 1.86 billion yuan of overdue borrowings. Its 22.96% stake in listed firm Baoding Tianwei Baobian Electric Co. has been frozen by local courts because of its dispute with creditors, according to China Credit Rating Co.

Baoding Tianwei’s 2016 notes have dropped 7.1% since March 31 to 85.3% of par as of Monday, set for the sharpest monthly decline since they were issued in 2011, said Bloomberg.

Small and midsized Chinese companies often gripe that state-owned companies are always accorded special treatment by officials. Baoding’s fate may signal that things are changing for the better.

On the privately held side, Kaisa Group Holdings became the first Chinese developer to default on U.S.-dollar-denominated bonds on April 20.

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