Debt defaults threaten recovery plan

Business | Agencies, Stella Zhai and Eurus Yiu 3 Jul 2020

China's policymakers have been walking a tightrope between economic recovery and fueling another debt bubble from the latest spending spree.

Onshore delinquencies have amounted to 395 since the first onshore bond default in 2014, Bloomberg data showed. Of that, 31.9 percent of the bonds that failed to repay debts were issued in 2016.

This came as the total amount of China's service trade for the first five months fell 14.6 percent year-on-year to 1.86 trillion yuan (HK$2.04 trillion). Service exports fell 2.3 percent, while imports fell 21.5 percent from a year ago during the period, Commerce Ministry spokesperson Gao Feng said.

In other news, S&P Global Rating predicted the road to recovery for Asia-Pacific GDP trends and earnings will last until 2023 and will be led by China, followed by developed economies and with emerging markets last.

The credit rating agency predicted that China's economic growth would be negative 4.6 percent this year, and rebound to 1.7 percent in 2021.

S&P also reminded investors that they should not be fooled by V-shape charts, as the rebound will not be significant and activity will remain well below "normal" for some time. However, it saw no signs the pandemic would trigger a repeat of the Asian financial crisis.

Elsewhere, the US St. Louis Federal Reserve President James Bullard said a wave of "substantial bankruptcies" triggered by the pandemic could lead to a financial crisis, warning that "it's probably prudent to keep our lending facilities in place for now, even though it's true that liquidity has improved dramatically in financial markets."

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