BoAML analysts also outlined why their initial reaction to the Shanghai Chaori news was positive.
"We think it's a good thing as a normal economy needs defaults to better price bonds and other debt products," they said in a note. "There's no need to worry. Let's not underestimate Chinese onshore investors' resilience. Defaults of some debt products are not on a similar scale to a collapse of a major financial institution."
They said that the bond default could be seen as good news for less risky debt products but negative for riskier debt products, adding that China needed to improve its bankruptcy laws and legal procedures to promote healthily growth of the corporate bond market.
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The news from Shanghai Chaori came ahead of a slew of headlines from the first day of the annual meeting of China's parliament, the National People's Congress.
China set its gross domestic product (GDP) growth target for 2014 at 7.5 percent, as expected.
"2014 will be the year China seriously cleans up mounting local government and corporate debts which have been rapidly accumulated since late 2008," the BoAML analysts said.
"We believe the chance of some bond and trust loan defaults will rise significantly in 2014, especially as the more confident government sees the need for some defaults to develop a more disciplined financial market," they added.
— By CNBC.Com's Dhara Ranasinghe; Follow her on Twitter