Slower credit growth and efforts to reduce government leverage have compounded pressures in China’s credit markets. Our calculations show that corporate bond defaults jumped to 142 billion yuan in the first half of 2021, compared to 52 billion yuan in the first half of 2020. Downgrades of credit ratings in 1H 2021 have more than tripled from last year, which should produce many more defaults in the coming months. Total corporate bond defaults could top 400 billion yuan this year, around 3.5-4.0% of all bonds maturing.
State-owned enterprises (SOEs) accounted for more defaults early in the year, while property developers continued to lead overall defaulters by industry. The island province of Hainan is seeing the highest ratio of defaulted bonds, but most defaults are taking place in northeastern provinces.
