A wave of debt appears to be lapping over China’s corporate sector.
In a report released by Singapore bank DBS, yuan-denominated debt jumped to an “unprecedented” 119.6 billion yuan (US$17.8 billion) last year, which was quadruple the 2017 number.
During the past 12 months, the world’s second-largest economy has been buffeted by slowing growth and the fallout from the trade war with the United States.
Tight credit conditions and high borrowing costs have only added to the challenges facing corporate China.
“[The country] witnessed an unprecedented wave of corporate bond defaults last year, in a fresh sign of wobbles hitting financial markets as [the] slowdown deepens,” the DBS study stated.
Up to 3.5 trillion yuan in corporate bonds will mature this year, fuelling fears of another round of “defaults.”
“The wave is extending into 2019 … Given the reduced risk appetite and huge maturing volume, the outlook is poor,” the DBS report highlighted last month.
“Availability of credit for refinancing remains tight despite repeated monetary easing by [the] PBOC [People’s Bank of China].”
The de facto central bank will probably continue to ease “monetary policy” in 2019 to encourage lending in the private sector in a move to curb rising unemployment.
Yi Gang, the PBOC governor, warned of the dangers ahead on the sidelines of the National People’s Congress in Beijing earlier this month.
“The global economy still faces some downward pressure and China faces many risks and challenges in its economy and financial sector,” he told the media.
Rising debt is just one of them.