Default blues ahead for China?

Property developers and state-owned firms are the weak links in a likely chain of defaults. S&P Global Investors' Lee says China should act boldly to prevent financial contagion.

Several factors could increase the default rate beyond what the market expects and this could shut the bond market. 

First, government support towards state-owned enterprises SOEs is shifting, illustrated by the  default of China Railway Materials in April this year.

More than 100,000 SOEs at both central and local government levels receive preferential credit allocation by banks. Uninterrupted access to funding keeps many of the struggling ones afloat. If the government fails to rescue an important SOE especially when the market expects such support we could see deterioration in market access and the start of a vicious cycle that could negatively impact the...

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