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Big trouble in China's big bond market?

An employee at a currency exchange store counts Chinese one-hundred yuan banknotes in Hong Kong, China
Xaume Olleros | Bloomberg | Getty Images
An employee at a currency exchange store counts Chinese one-hundred yuan banknotes in Hong Kong, China

Lending to state-backed companies used to be seen as nearly as safe as lending to China itself. Recently, however, firms have started reneging on their promises to bondholders. This reflects an economic slowdown and represents a useful dose of market discipline. But the risk is that withdrawal of government support could spook investors, creating a credit drought. Breakingviews looks at what has changed and what comes next.

What's happening in China's bond market?

After a few blowups in late 2015, things are getting sticky in China's 24 trillion yuan ($3.7 trillion) corporate bond market. In the first quarter, 13 companies either did not pay interest or principal as promised, or delayed payments to bondholders, according to UBS. That is more than the whole of last year.