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Authorities are also trying to keep market participants from assuming that borrowers backed by central and local governments have some kind of implicit guarantee. This has put pressure on some government backed companies, and there are signs that the offshore bond market will soon be affected as well.
However, it is believed that such a healthy development can pave the way for more accurate risk pricing and a more normal yield gap between bonds issued by stronger and weaker borrowers.
Banks point out that stronger issuers, such as Geely motors (0175. HK) and China Resources Land (1109. HK), have not had problems attracting investment in recent weeks.
According to data from Fitch, a credit rating agency, from January to November this year, 4.9% of private companies defaulted on payment of RMB debts, higher than 4.2% in 2018, a record high. Fitch estimates that China's domestic corporate bond market is about 19 trillion yuan (US $2.7 trillion).
The domestic market was further pressured by actions taken by authorities in May to take over troubled contractors' banks and by some investors having to write down their debts.
Some issuers have defaulted on their debts, such as Hohhot Economic and Technological Development Zone Investment and development group company. The 1 billion yuan bond of the state-owned enterprise in Inner Mongolia partially defaulted this month.
Other corporate bond yields have risen sharply, including issuers with SOE backgrounds in Guizhou, the second highest debt Province in China. For example, the yield on the three-year bonds of Guizhou Hongguo Economic Development Zone Development Co., Ltd. due in January 2020 has soared from about 6% in summer to 14%.


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