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China’s central bank could intervene after ‘glaring’ state-firm bond defaults, analyst says

 China’s central bank could intervene after ‘glaring’ state-firm bond defaults, analyst says

A person wears a protecting masks as he rides previous the The People’s Bank of China in Beijing.

Emmanuel Wong | Getty Images

SINGAPORE — The People’s Bank of China (PBOC) could step in following numerous latest bond defaults by Chinese state-linked companies, in accordance with Bank of Communications International’s Hao Hong.

“In the past couple of weeks the default situation is somehow getting glaring,” Hong, managing director and head of analysis on the agency, instructed CNBC’s “Street Signs Asia” on Friday.

“I wouldn’t be surprised to see the PBOC intervene from here,” he mentioned.

Earlier in November, state-owned coal miner Yongcheng Coal and Electricity defaulted on a 1 billion yuan (round $152.01 million) bond, catching buyers off guard given the agency’s AAA-rating by a home company. Other high-profile debt defaults adopted, together with government-backed chipmaker Tsinghua Unigroup.

Hong mentioned it is within the Chinese central bank’s “best interest” to take care of ample liquidity to keep away from “systemic risk.”

The PBOC beforehand warned in its monetary stability report that elements resembling a reliance on borrowing to make debt repayments by some giant companies could current a threat to the complete economic system, in accordance with CNBC’s translation of the Mandarin-language textual content.

“I think recently the corporate default is catching a lot of people’s attention,” the analyst mentioned. “I would say that, you know, it is concerning because it’s coming from (state-owned enterprises) but then at the same time, it’s a relatively small amount in a very large market.”

Asked when issues over the bond market could subside, Hong highlighted a “very large bid from unknown buyers” going into the market yesterday to “shore up” the questionable bonds — an exercise normally related to government-related entities.

He additionally in contrast the scenario to China’s “unprecedented liquidity crisis” in 2013, when cash market charges soared and short-term charges touched file highs.

“During that time, overnight interest rate was hitting almost 50%,” Hong mentioned. “We haven’t seen that kind of level for interest rate for years and years since then.”

— CNBC’s Weizhen Tan and Yen Nee Lee contributed to this report.

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