China’s Corporate Bond Default



China experienced its first corporate bond default in the beginning of the year in March. It was the first time during the last 17 years. A bond default most typically occurs when the issuer of the bond is not able to pay all its bondholders due to the lack of cash. Corporate bond for a Chinese company was defaulted; a solar power company, Shanghai Chaori Solar, failed to fully pay back its investors. As a result, China decided to announce the company’s default, meaning that they do not have to pay its bondholders.

If a company’s bond defaults, it signifies that the company is having a hard time financially. Shanghai Chaori Solar, like any other typical bond-defaulted companies, is also experiencing a very severe financial difficulty. However, the Chinese government does not have any plans for a bailout. Number of people believe that the Chinese government is deliberately doing so in order to try to adopt a more modern and capitalistic financial system and to reflect the tax payers’ opinions that the government should not take up a large portion of its money on helping companies.

The level of debt in China has reached a similar level with that of the United States and Korea just before the recession. What will happen in China in the near future is uncertain but there are some concerns as the nation’s debt continues to increase. The action of the Communist party is on the lookout for the Chinese people as well as the rest of the world.

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