Defaults by Chinese firms on their US dollar-denominated debt have risen significantly this year as the coronavirus pandemic, a slump in oil prices and deteriorating US-China relations have hurt business and reduced their ability to repay, reported the South China Morning Post.
This environment has caused a decline in market confidence, triggering a shortage of dollar liquidity that is limiting some firms’ ability to borrow US dollars to pay back existing debt.
US dollar bond defaults by Chinese firms have jumped threefold to $12 billion so far this year from $4 billion for all of last year, according to data from French financial firm Natixis. Chinese companies hold $101.8 billion worth of US dollar bonds that mature this year, a figure which will increase 10% in 2021 and surge another 19% in 2022, according to data from Refinitiv.
“The default volume of the US dollar debt of Chinese firms is rising mainly because of weaker corporate fundamentals, pressuring internal liquidity,” said Zhang Guo, managing director at China Chengxin (Asia-Pacific) Credit Ratings. “We need to consider macroeconomic factors since the pandemic overseas has not been controlled, while US-China tensions will also affect Chinese US dollar debt.”