Following a regulatory relaxation by the Chinese authorities, unlisted companies can issue bonds on public exchanges, an alternative funding route for high-risk borrowers, after the government clamped down on precarious “shadow banking.” In the third quarter, new corporate bond issuance rose to 914 bn yuan, equivalent to 29% of all new credit. The rise in debt is also being driven by rising interest rates. Some analysts worry that the regulatory changes may lead to a repeat of the recent boom-bust cycle.
Following a regulatory relaxation by the Chinese authorities, unlisted companies can issue bonds on public exchanges, an alternative funding route for high-risk borrowers, after the government clamped down on precarious “shadow banking.” In the third quarter, new corporate bond issuance rose to 914 bn yuan, equivalent to 29% of all new credit. However, these bonds are now packaged into high-yielding products offered to desperate investors reeling from the summer stock market crash and real-estate downturn and who trust the big-name backers such as Pacific Asset Management and the Agricultural Bank of China. Some analysts worry that the regulatory changes may lead to a repeat of the recent boom-bust cycle.