Two Chinese corporate bonds headed towards what may prove to be precedent-setting default this week, in the latest test of Beijing’s willingness to confront moral hazard in the financial system.
While Beijing has repeatedly spoken of its desire to let market forces prevail and to allow companies and investments to fail it has proved less willing to deliver - fearing the fallout and impact on stability from hoardes of disgruntled investors.
Thus investors have been shielded from the handful of technical defaults and late coupon payments that have occurred in the past year, through the intervention of either government or state-backed white knights.
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