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The decline in corporate bonds made by Chinese rating agencies has tripled

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The decline in international corporate bond ratings in China has more than tripled this year, underscoring Beijing’s efforts to reduce risk in the country’s $ 17 billion credit market due to several high-priority defaults.

International rating agencies and fund managers have long criticized the Chinese artificially high assuming corporate credit ratings and low default rates, lack of transparency and rescuing struggling companies from the government.

But according to data provider Winds, 366 bonds fell in the first four months of 2021, compared to 109 a year ago at the same time.

Rise Liu He, China’s deputy prime minister, warned in November that Beijing would have “zero tolerance” for corporate misconduct default range state-owned enterprises.

Analysts said regulators have put pressure on borrowers, home rating agencies and auditors in an effort to raise awareness of the risks in a timely manner.

Among the hundreds of declines this year were HNA, an available conglomerate that has been dealing with debt and liquidity problems for nearly five years, including bonds issued and Tsinghua Unigroup, A major computer chip investor that has faced the problem of repaying bonds since 2018.

Charles Chang, China’s largest country leader at S&P Global Ratings in Hong Kong, said reporting on the risks of Chinese companies has “begun to improve”.

“If that regulatory push works, you should see an increase in the punctual action that puts you under stress…. That doesn’t mean the stress increases, but it does mean that the expression of that tightness increases,” Change said.

The S&P noted that more than 80% of local ratings of non-financial corporate issuers in China were double A. Under this quality, Chinese groups cannot issue public negotiating debt.

Five rating and audit firms in contact with the Financial Times did not respond to requests for comment.

Chinese regulators have been fighting for years to improve transparency in the country’s corporate debt market. Analysts say the study by regulators is growing in state-owned companies with debts.

Focus on state-sponsored Yongcheng Coal and Electricity Bonds in November has sent shockwaves Through the Chinese financial system.

Some of the defaults could also be the economic damage caused by the coronavirus pandemic, analysts said, although China has returned to pre-pandemic levels of economic growth in the last quarter of 2020.

Xiaoxi Zhang Gavekal, an analyst at Dragonomics, said Chinese leaders have highlighted “hidden debt” as a priority this year, and are working to change market perceptions that many companies had an “implicit guarantee”. the state would rescue them.

“The government wants to take advantage of the strong growth of the post-Covid rebound to address structural issues,” the research note wrote in a statement.

“But also the tightening of credit and the withdrawal of solidarity-based economic policies can lead to greater financial stress if hidden debt is not managed well.”

S&P Chang, however, noted that the default rates in China are relatively low. “China’s default rates would have to double or triple the level you see in the US, Europe and emerging markets,” he said.

Additional report by Sherry Fei Ju in Beijing

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