Concern about China's debt load is mounting, but there are signs that higher interest rates may finally be helping the country get to grips with the wasteful investment and excessive borrowing that has fueled the economy since the global financial crisis.
An official audit showing a big jump in Chinese government debt since 2010 caused some alarm last week, but in fact corporate debt may present an even bigger risk.
The audit showed that local and central government debt equaled 58 percent of gross domestic product last year, and most economists estimate that corporate debt is at least twice that level.
For now though, explosive debt growth appears to be slowing. At least 35 Chinese companies canceled or postponed previously planned bond sales totaling 59 billion yuan($9.75 billion) in the last two months, according to Reuters calculations based on public disclosures.
That's good news for an economy where debt from all sectors probably reached 218 percent of GDP at the end of 2013, according to rating agency Fitch, up 87 percentage points since 2009. Economists warn that similarly rapid run-ups have led to financial crises in other countries.
Higher interest rates are the main reason for the recent wave of bond issue postponements, with borrowing costs rising as China's central bank set about damming the flood of easy money and over-investment that had supported economic growth in the face of the global financial meltdown.
The benchmark yield on five-year AAA-rated medium-term notes reached a record-high 6.36 percent on Dec. 31, up from 4.51 percent in mid-May, according to data from the National Interbank Funding Center.
China's second-largest coal producer, China Coal Energy, planned to sell one billion yuan of 10-year medium-term notes on Dec. 24 but cancelled the sale at the last minute, saying the funds weren't necessary to fund vital investments.
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"We already issued some medium-term notes a while back, so we have enough money for the moment," said a woman at the board secretary's office of China Coal, who declined to give her name.
"We were originally approved to issue (a certain amount), and we thought it would be a pity not to use up the full amount. But if we don't issue right now, it won't have much of an impact on the company," she said.
This and similar statements by Dongfeng Motor and Inner Mongolia Junzheng Energy and Chemical Industry suggest the postponements may carry little cost to China's economy.
Indeed, China Coal said it had plans to finance six coal gasification projects, but the government has identified coal gasification as suffering from severe overcapacity.
Dongfeng said it had planned to use proceeds from its bond sale to "replenish liquid funding," a vague term that can include almost any activity.
While Dongfeng's specific plans aren't known, economists expressed concern earlier this year that state-owned borrowers with easy access to credit - but few avenues for productive investment - were engaged in arbitrage by re-lending borrowed funds at higher rates to firms that struggle to obtain bank loans or issue bonds.
High borrowing costs have already contributed to a slowdown in overall borrowing. New credit of all forms grew 32 percent year-on-year in the first half of 2013, but by November the growth rate had slowed to 14 percent.
In response to rising borrowing costs onshore, Chinese firms have also increased their borrowing dollars offshore, where the Federal Reserve's bond-buying stimulus program has kept rates ultra-low.
And in late December, Shanghai Chengtou, a financing platform owned by the municipal government, sold $200 million worth of U.S. dollar notes, the first sale of foreign-exchange denominated bonds in China in over three years and only the third ever. The cost, set at a floating rate linked to Libor, was lower than the company could have obtained by selling yuan bonds.
The key factor driving onshore rates higher is China's plan to loosen the government's grip on interest rates. An official cap on bank deposit rates has long kept borrowing costs across the economy artificially low, effectively subsidizing investment in factories, roads, and apartment blocks.
But in a landmark reform blueprint released following a Communist Party meeting in November, top leaders pledged to let the market play a decisive role in allocating resources, including credit.
"As interest rates rise, we should see credit demand decline, and cancelled issuance is one way that shows up," said Yao Wei, China economist at Societe Generale in Hong Kong.
In fact, de facto liberalisation has been underway for several years, as Chinese savers have increasingly shifted from traditional bank deposits to higher-yielding substitutes known as wealth management products, which are not subject to the cap on deposit rates.
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In addition, China's central bank has recently signaled an unofficial shift to tighter money. The People's Bank of China last month allowed the interest rates that banks charge each other for short-term loans to spike to unsustainable levels, the second such cash crunch in six months.
The PBOC's refusal to inject large amounts of cash into the banking system, even as banks scrambled for funds and default rumors circulated, sent a blunt message that banks should focus on deleveraging.
While state-owned companies are the main issuers of corporate bonds, Yao said private-sector firms may be feeling the credit squeeze even more acutely. That could be bad news for China's economy, as economists say private firms use capital more efficiently on average than state-owned companies.
"What's not showing up in the bond data or even bank lending data is a sharper decline in the credit demand of the private sector," she said.
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Yao warned that higher interest rates are likely to weigh on growth in 2014.