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More than $1.8 billion of Chinese bond defaults took place in the first two months of 2019

Chinese companies are facing a reality check after years of ramping up debt. A deleveraging campaign that President Xi Jinping began in 2016 to curb risks in the nation’s financial markets has cracked down on shadow banking and tightened rules on asset management. As a result, firms are having a tougher time raising new funds to repay existing debt, leading to a record number of bond defaults and government moves to try to alleviate the liquidity crunch. The worsening economic climate isn’t helping.

1. How big is the problem?

It’s big, with the potential to worsen. More than 12 billion yuan ($1.8 billion) of local note defaults took place in the first two months of 2019, including four private and 12 public offerings, according to Bloomberg-compiled data. The tally last year was a record 120 billion yuan, more than quadruple the 2017 amount. Failures from private sector firms, which accounted for more than 90 percent of total defaults last year, are still the trend. Some 4.8 trillion yuan of bonds will mature in the final 10 months of 2019. To make things worse, many companies may be living on borrowed time: Cash flow deficit for non-financial firms is at the highest level in six years.


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