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Why Are Defaults Rising In Chinese State-Owned Entreprises?


China corporate debt defaults trigger concerns of broader crisis | China News | Al Jazeera

A Chinese mining firm that defaulted on its debts this week held an emergency creditors' meeting on Friday to address potentially "huge credit risks", as a series of defaults by top-rated state-owned enterprises (SOEs) sent shockwaves through China's corporate bond market.

Investors have traditionally seen bonds issued by state-owned firms as less risky due to their perceived government backing. But the recent delinquencies triggered a selloff in debt issued by state firms in impoverished provinces, raising fears of a brewing credit crisis.

 "Once the credit environment is destroyed, it's very difficult to rebuild confidence," wrote Qu Qing, an analyst at Jianghai Securities, highlighting a risk that investors will desert corporate bonds for the perceived safety of Chinese government bonds and policy bank bonds if the situation deteriorates.

Meanwhile, the SSE 50 Index of Shanghai's largest stocks slumped as much as 2.3 percent on Friday, led by banks and insurers. Executives from the state parent of mine operator Yongcheng Coal & Electricity Holding Group Co met major creditor banks in Henan province on Friday.

Local officials from China's central bank and banking and state asset regulators were also present, according to a notice seen by the Reuters news agency and state media. The meeting is taking place three days after the coal miner failed to make principal and interest payments on 1 billion yuan ($151m) in commercial debt.

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