The facts: A series of bond defaults of state-owned enterprises (SOE) has cast a shadow on China’s economic recovery from the Covid-19 crisis. On November 17, Tsinghua Unigroup, a semiconductor company and key player in China’s efforts to upgrade its industry, became the latest to join the list, defaulting on a CNY 1.3 billion bond. The spook began in October when Huachen Automotive, owned by the provincial government of Liaoning, defaulted on a bond payment. Yongcheng Coal and Electricity, based in Henan Province, also defaulted on a CNY 1 billion bond that was only issued in October.
The People’s Bank of China (PBOC) injected CNY 800 billion into credit markets on November 16 to sooth investors’ nerves, but some fundamentals are changing. The PBOC’s WeChat account resurfaced an older speech from Governor Yi Gang in which he stated that investors should bear the risks of their investments. The influential Financial Stability and Development Committee agreed to pursue a zero-tolerance strategy with regard to debt evasion.