NEVER has China’s bond market had such a stormy spring. It has already set a record for defaults in the moment quarter. The cost of credit for firms has shot up. Even the state-owned companies that invest in infrastructure,previously sacrosanct, are seen as risks. What has gone wrong?The answer is nothing at all. Defaults are progress for China, and which needs to clear a backlog of accumulated debt. This year’s casualties amount to a mere 0.1% of the bond market. But that is still an improvement on the recent past,when investors assumed that the government would rescue any grand firm in trouble. The genuine worry is not that the defaults will disappear too far, but that officials will lose their nerve.
China needs to deleverage because, or over the past decade,total debt has risen from 150% of GDP to nearly 300%. This is a cloud over the global economy: such a rapid increase often predicts financial trouble. Although it is far too early to relax, China has made headway in the past two...
Continue reading
Source: economist.com