HONG KONG â€" A small producer of solar panels on Friday became the first company in recent history to default in China’s domestic bond market, a development welcomed by analysts as a sign that the nation’s huge but protected corporate debt market may be growing up.
The Shanghai Chaori Solar Energy Science and Technology Company, which makes solar cells and panels, failed to meet a Friday deadline to make an annual interest payment on a bond of 1 billion renminbi, or $163 million, that it sold to domestic investors in 2012, a company official said Friday.
The bond “is confirmed to be in default,†the official, Liu Tielong, the secretary to the board of directors at Chaori, said Friday in a telephone interview.
Mr. Liu said the situation had not changed from Tuesday, when Chaori said in a stock exchange announcement that it had come up with only about 4 million renminbi out of the 89.8 million renminbi payment due Friday. The company did not plan to make a further announcement, he added.
Other recent cases in which Chinese companies came close to defaulting on debt or other payments were averted at the last minute, usually with government intervention. That no 11th-hour bailout emerged for Chaori or its investors was viewed by analysts as a signal that the Chinese leadership is serious in its commitment to carrying out a market-oriented financial overhaul.
Chaori’s default represents “a wake-up call for China’s bond market,†analysts at Moody’s Investors Service wrote Friday in a research note. They said the development would help China “introduce greater market discipline and advance the development of a risk-based bond market, in which pricing reflects the underlying credit risk.â€
China’s domestic bond market has grown from nearly nothing a decade ago into the world’s third-biggest corporate debt market, after those in the United States and Japan. Total corporate bonds outstanding have risen to 8.5 trillion renminbi at the end of last year, from about 500 billion renminbi at the end of 2005, according to the official figures compiled by the Asian Development Bank.
Analysts and investors have grown concerned in recent years about the rising level of debt in China’s economy, especially as growth slows. Over all, despite the relative immaturity of the country’s bond markets, China’s corporate sector has loaded up on debt more aggressively than households or local governments.
Total debt in China stood around 210 percent of the country’s gross domestic product at the end of last year, a figure that is relatively high for China’s level of development, Louis Kuijs of the Royal Bank of Scotland wrote Monday in a research report.
Of that total, household debt was equal to 34 percent of G.D.P., the ratio for government debt was 57 percent of the economy, and corporate debt â€" both loans and bonds â€" was 119 percent.
