China’s $1.3t domestic debt hurtles to maturity as defaults surge: report

The huge debt, unprecedented pace of defaults underscores local authorities’ conflicting goals.

Investors are bracing for another turbulent era in China as the maturity of its trillion-dollar domestic debt draws nearer whilst local borrowers are defaulting on onshore debt at a record pace.

The country’s corporate bond tab stands at about $1.3t of domestic debt payable in the next 12 months, reports Bloomberg. This is 30% more than what US companies owe, 63% more than in all of Europe and enough money to buy Tesla Inc. twice over.

The huge debt and unprecedented number of defaults are underscoring the challenge for Chinese authorities as they work toward two conflicting goals: reducing moral hazard by allowing more defaults, and turning the domestic bond market into a more reliable source of long-term funding.

Whilst average corporate bond maturities have increased in the U.S., Europe and Japan in recent years, they’re getting shorter in China as defaults prompt investors to reduce risk. Domestic Chinese bonds issued in Q1 had an average tenor of 3.02 years, down from 3.22 years for all last year and on course for the shortest annual average since Fitch Ratings began compiling the data in 2016.

Here's more from Bloomberg.