The size and type of defaults that have occurred in China in recent times indicate that the notion of “too big to fail” may no longer apply to the nation’s borrowers, according to Goldman Sachs Group.
There has been a noticeable up-tick in defaults by Chinese state-owned enterprises since late 2019 and some of the borrowers that have failed to repay debt recently, such as China Fortune Land Development, have had large amounts of outstanding bonds, analysts including Kenneth Ho wrote in a report dated Friday.
“Even for large corporates or for state-related entities, policymakers are much less willing to extend support,” Goldman Sachs analysts wrote. “Policy makers are now less likely to conduct full bailouts.”
Concerns about the financial health of state-backed bad debt manager China Huarong Asset Management, which has about $21 billion in outstanding US currency notes, have shaken the Asian dollar bond market since April after its failure to release financial results triggered speculation about a potential debt restructuring. While the treatment of recent distressed cases in China indicates a waning of implicit government support for borrowers, it doesn’t mean that there’s no government backing, said the analysts.
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