More Chinese companies could default on their debts issued in U.S. dollars, experts warn.
They say that the rising cost of borrowing and a weakening Chinese yuan could see more firms fail to meet upcoming payments, as an increasing number of bonds mature in the next few years.
Japanese bank Nomura said in a research note in early November that for the first 10 months of this year, defaults on Chinese offshore corporate dollar bonds — or OCDB — totaled $3.4 billion, compared with none last year. It expects more defaults to come over the next two years.
So far, there's little chance that increased pressure on offshore dollar repayment could trigger a broader crisis, but the situation should be closely monitored for spillover threats.
"I'm watchful over how these dollar debts will roll over in time," Tai Hui, chief market strategist for Asia Pacific at J.P. Morgan Asset Management in Hong Kong, told reporters Thursday.
Hui stressed that he currently sees no systemic risks, but noted that financial strains often begin in one area before spreading.
"I think the government needs to be very mindful of some of these potential links," he said, adding that the property sector should be foremost in mind.