Afternoon Everyone,
Today's issue will be shorter than usual as there is really one story that really matters in the news cycle. That is the drama concerning the Chinese debt markets and the rising number of defaults among Chinese State-Owned Enterprises. This saga runs counter to the narrative that Chinese quarterly GDP and export numbers give the impression of a resurgent and seemingly unstoppable Chinese economy.
What companies have defaulted so far?
- Yongcheng Coal & Electricity
- 1 Billion Yuan ($152 million)
- Huachen Automotive Group (BMW/China Joint Venture)
- 990 million Yuan ($149.1 million)
- Tsinghua Unigroup (Chinese Semiconductor Manufacturer)
- 1.1 Billion Yuan ($199 million)
What has changed?
On Wednesday Chinese backed chipmaker Tsinghua Group announced that it would fail to pay its principle on a $450 million Eurobond and a $40 million interest payment for an onshore yuan bond. With the default on this second tranche of issuances, it likely means the dollar-denominated debt owed by the Tsinghua Group totaling $2 billion is likely in default also.
This is a considerable escalation in the nation's sting of defaults in Chinese State-Owned Enterprises as all previous defaults were only in Chinese Yuan, shielding international investors who hold Chinese euro or dollar-denominated debt. That has now changed as the default of Tsinghua Group likely indicates more defaults are yet to come.
However, what is beginning to worry local and provincial officials is the possibility of contagion within public spheres. Not only have provinces bailed out their state-owned champions in the past, but they could... (More)
