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As the credit tide ebbs in China, more and more defaults come

China’s bond defaults hit a new high in 2018 as the world’s second biggest economy lost steam amid a trade war with the United States.

The number of corporate bond default cases surged to 118 in 2018, or more than triple the 35 cases in 2017, while the value of defaulted bonds also tripled to 116 billion yuan in 2018 from 33.7 billion yuan one year earlier, according to the data compiled by Wind Information.

Will the trend extend into 2019 and what are the major risks for investors?

Ivan Chung, head of Greater China credit research and analysis at Moody’s Investors Service, explained what was behind the climbing default cases in 2018 and what to watch in the new year.

 
When the tide goes out, you discover who's been swimming naked. 
Unlike 2016 when most of bond defaults occurred to companies in the sectors with overcapacity, such as coal mining and steel making sectors, "most defaults last year was triggered by the sharply tightening credit conditions due to the deleveraging campaign", said Chung.

 

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