Shanghai Limits Individual Purchases Of Risky Bonds As China Overtakes US As Biggest Corporate Borrower

Tyler Durden's picture

With China's shadow banking system's collateral chain's collapsing amid government crackdowns on the ponzi, the 'desperate for liquidity' borrowers have increasingly turned to global capital markets' suckers to fund the next malinvestment. As China's currency becomes more internationalized and yields around the world collapse (thanks to central bank largesse), demand from investors has driven, for the first time ever, the Chinese corporate bond market has overtaken the United States as the world's biggest. As S&P warns, this is raising global credit risk as "as much as 10% of global corporate debt is exposed to the risk of a contraction in China's informal banking sector," or around $4-$5 trillion, "causing overall corporate risk to increase globally," and it's not expected to slow anytime soon.


As Reuters reports,

The Chinese corporate bond market has overtaken the United States as the world's biggest and is set to soak up a third of global company debt needs over the next five years, according to rating agency Standard & Poor's, underscoring the growing risk China's debt market is imposing on the global financial system.


Chinese corporate borrowers owed $14.2 trillion at the end of 2013 versus $13.1 trillion owed by U.S. corporations with the switch in rankings taking place a year earlier than it had expected, S&P said on Monday.

But that is not good news for the world's investors...

China, the world's second-largest economy is currently financing a quarter to a third of its corporate debt through its shadow banking sector and this had global implications, S&P said.


"This means that as much as 10 percent of global corporate debt is exposed to the risk of a contraction in China's informal banking sector," the agency said, estimating this at $4 trillion to $5 trillion. "With China's economy likely to grow at a nominal 10 percent per year over the next five years, this amount can only increase."




"As the world's second-largest national economy, any significant reverse for China's corporate sector could quickly spread to other countries."

As S&P sums up...

Cash flows and leverage at Chinese corporations are the worst among global peers, having deteriorated from being the best in 2009.


China's large and still-expanding contribution to global corporate debt, the higher financial risk is causing overall corporate risk to increase globally," the agency said.

It appears the authorities are starting to catch on (via SSE):


As Bloomberg reports,

Shanghai stock exchange will alert about risks for its listed corporate bonds if the issuer’s solvency is “severely affected” by violations or govt investigations, according to a statement on the exchange’s microblog.


A risk alert will be issued when:

  • Bond rating hits AA- or falls below AA-
  • Issuer forecasts second straight year of loss
  • Issuer’s solvency is “severely affected” by changes in operations
  • Individuals with less than 5m yuan of assets are banned from buying bonds with risk alerts

Coming to a gated US bond fund market near you soon...forcing the purchase of entirely unrisky stocks (since real estate speculation has already had its wings clipped)

Nothing to see here, move along (as we noted previously, the scale of China's credit expansion dwarfs the Fed's QE)

And if we had to show it in one chart, it would be the following comparison of total Chinese and US bank assets: the two lines shown below are on the same axis, and at the end of 2009, the US had just a fraction more assets than China.



Another way of showing just the past three years:



Since then the US has added $2.3 trillion in bank assets, exclusively thanks to the Fed's reserve creation. As for China... total bank assets more than doubled from $11.5 trillion to a record $25 trillion! This is a number that is nearly double that of the US, and represents a pace of $3.5 trillion per year - or nearly four concurrent QEs - a rate of "financial asset" addition five times greater than in the US!

We are sure any contraction in that flow that is not subsidized by the bubble blown in corporate credit issuance or shadow-bank CCFDs will land as softly as a Ghanaian strikers' leg on Dempsey's nose.

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CrashisOptimistic's picture

S&P can't bear to realize the truth.

If these debts threaten China in any way, the Chinese Central Bank will bail them out and that threat will go away. 

S&P can't bear to face the reality that the only limit on central banks now is oil.  CBs will work in concert to prevent any country v. country upheaval. 

But oil is out of their control, and they cannot accept it.

stocktivity's picture

It's all Bullshit!!!!    Futures are up....Rally on! 

andrewp111's picture

If Baghdad falls, or ISIS marches on Saudi Arabia, Oil  could go to $500.

thisisjustarandomusernameicreatedforzerohedge's picture

WTF would ISIS march on Saudi Arabia?

hobopants's picture

This is one of the most orderly "collapses" I've seen.

disabledvet's picture

now imagine this "most orderly collapse" is all being done by a "computer"

a "simulation."

using "remote control."

and "modeled behavior" (or "the behavior of a model perhaps?)

and while the buildings are real

when the firm collapsed
there was a striking paucity of employees.

and then "recovery nonetheless."

this was where my mind immediately went to after Lehman...Larry Ellison and "Oracle" corporation.

he had said something that had caught my attention just after 9/11. "all we need to know is "am i who i say i am."" that wasn't Hollywood...that was "real" to me. "My identity...confirmed."

and his firm had already collapsed "but maybe could recover."
And it did and it has...along with many other companies.

Some I had heard of before (Microsoft, Netflix)
And some I hadn't (Tesla, Twitter.)

this caught my attention because under "W" and 9/11 we seemed to be rushing headlong into some "Interstellar Overdrive" thingy.

something..."really bad."
(there's just no way to make that song good. sorry...IO sucks as music.)

to give these guys credit...they turned into a great Band.

but they needed a new leader before they became great.

and then another leader after that.

"And it was like Lehman never mattered."

Kinda scary if you think about it.

BandGap's picture

Blotter? Microdots?

Please answer.

Ban KKiller's picture

Window pane or powder...cut with Tang or Quik. 

TruthHunter's picture

"This is one of the most orderly "collapses" I've seen."

Orderly? Kind of like the first Tower...uhh, something's giving way up there... Holy Shit, there it goes!

Caviar Emptor's picture

"as much as 10% of global corporate debt is exposed to the risk of a contraction in China's informal banking sector"

When they say 10%, they mean 50%. Everyone 2008-13 thought "China will pull the world out of recession".

disabledvet's picture

you said THOUGHT.

But all I need to DO is "buy low/sell high."

CheapBastard's picture

"...riskiest in the threat ... exposed to rapid deterioration...."


Sounds Bullish to me. So in other words, "There's never been a better time then now to by Chinese corporate bonds.


Oldwood's picture

Only a fool would sell. You wouldn't want to be a fool would you? Of course for you to buy, some fool must be selling. What in the hell could they be thinking?

Cognitive Dissonance's picture

It takes two hands to handle a Whopper.

<I can't hold her together Captain. She's gonna bl........>

BandGap's picture

Correction -"It takes two hands to handle my Whopper".

lasvegaspersona's picture

and I thought it would be the USA screwing the rest of the world with debt default...looks like we all fall down...together...hard!!

JJdog's picture

I think the entire stock market is fake, all the numbers on the exchange, on CNBC, on NYSE are all made  up, just sets of numbers they created from computer algo to keep people thinking there is a "market".  But in reality, they are just bunch of meaningless numbers to keep people calm. 

Schmuck Raker's picture

"....China's economy likely to grow at a nominal 10 percent per year over the next five years......"


Schmuck Raker's picture

We now return you to your regular ad fare involving headshots of John Wayne as Jenghis Khan

Atomizer's picture

Go long on eggroll.

ebworthen's picture

Sure, all under control, and restricting individual purchases is going to prevent an unwind.


AdvancingTime's picture

Much of the recent growth in China after 2008 came from a massive 6.6 trillion dollar stimulus program that expanded credit and poured massive amounts of money into the system. This money encouraged expansion and construction with little regard as to real demand or need. Like a plane on autopilot China continued in the direction it had been on.

Now China finds itself in a credit trap. For years the people of China have had the habit of saving much of what they earn but the low interest rates paid at banks has not rewarded savers. With few investment options much of this money has drifted towards housing and driven housing prices sky high. The economic efficiency of credit is beginning to collapse in China and the unwinding of China’s giant credit spree could be very painful. More in the article below.

KnuckleDragger-X's picture

I'm not worried, they've got warehouses full of hard assets backing them up. /s