The Huarong default and China’s macroeconomy

CHINA ADVISORY - Report 15 Apr 2021 by Andrew Collier

China’s State Council Tuesday issued a decree ordering a “deepening” of reform of the budget management system. The key point is an order to reduce financial risk and increase transparency of local government finance. This order follows the recent cancellation of the Ant Group IPO and stricter regulations of Ant’s online financial lending platforms, along with rising bond defaults. These events suggest an increasing trend toward de-risking and credit restriction in the economy. However:

1) Is the government serious this time about credit restriction or is this going to lead to new forms of “creative financing” for local governments?

2) Will holders of offshore USD debt issued by local corporations face a growing wave of defaults, as we have seen onshore with companies such as Huarong Asset Management?

Now read on...

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