China risks market panic as it tightens its grip


China’s campaign to cut leverage and instil corporate discipline is reshaping the nation’s $US12 trillion ($15.8 trillion) credit market.

One of China’s most prolific debt issuers hasn’t sold a single dollar bond in 17 months, the longest dry spell since 2013. An investment grade-rated conglomerate mostly owned by the government is facing a cash crunch in a test of state support. Analysts at UBS and Goldman Sachs now say the notion of ‘too big to fail’ no longer applies in China as defaults this year exceed $US23 billion, a record pace.

The danger for Chinese President Xi Jinping is that smashing investor faith in government guarantees triggers precisely the kind of crisis he’s trying to avoid.Credit:AP

Beijing is taking advantage of a strengthening economy and stable financial markets to toughen up its corporate sector. The result is a repricing of risk that should discourage the kind of reckless debt-fuelled expansion that inflated some…

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