The ratings agency cites recent rise in corporate bond defaults and credit events

  • likely to continue during the rest of 2018
  • Also tightened credit conditions

Corporates that have over-stretched their balance sheets during the previous credit boom to fund aggressive business expansion and those which have uncompetitive or structurally ailing business models, will struggle to refinance their maturing debt this year

The increased incidence of corporate defaults reflects the government's efforts to contain leverage and reduce complexity in the financial system, particularly through a clampdown on shadow-financing activities.

More:

Ten onshore bond issuers have defaulted on 17 bonds

  • total principal amount of CNY14.6 billion in 2018 (as of 7 May 2018)
  • compared with 18 defaults on 46 bond issues with a total principal amount of CNY39.3 billion in the whole of 2017

Also:

  • Trust loan defaults have increased, including a provincial state-owned construction company

Credit events have also risen

eg. DunAn, a large private manufacturer based in Zhejiang with CNY45 billion in outstanding debt, asked the provincial government to intervene with banks to resolve a liquidity crisis, citing systemic risk.

--

Tighter credit in China as authorities seek to reduce stability risk is a constraint on China, but a better alternative to runaway credit growth.