28. February 2019, 12:34 Uhr
It is by no means the first default of a Chinese company in recent years, with three private enterprises falling short of their debt obligations this year alone. It even isn’t the first default by a state-owned enterprise (SOE), at least insofar as the onshore Renminbi market is concerned. But Qinghai Provincial Investment Group marked the first instance of a Chinese SOE in twenty years defaulting on an offshore dollar bond, heralding a new chapter in the increasingly marred story the Chinese economy has become.
The reason this seeming fringe event actually is rather important rests with the behaviour of the provincial government of Qinghai: Heretofore, local and provincial governments in China have come to the rescue of beleagured SOEs, bailing them out to stave off defaults at least on their offshore debts. Yet this time around, the deleveraging ordered by the national government in Beijing appears to have claimed its first victim in terms of foreign investor relations. Though it is too early days to say whether this really is the beginning of a new hardline policy with regard to offshore debt, too, it strangely jars with China’s recent exertions to try and attract foreign capital in an effort to buffer the slowdown of the Chinese economy (see blog post on China’s vexing capital controls policy). Should the example of Qinghai prove to be the blueprint of future developments, debt investors are in for a rough ride just when they collectively had taken relief from the Fed’s about-face.