Brace for more defaults by China state-owned businesses, analysts warn.
A huge bond default by a large state-owned business spooked investors last week, prompting experts to question if it's a sign that Chinese government bailouts may be dwindling.
"We believe bailouts will be increasingly selective, leading to more defaults by SOEs," said ratings agency SandP Global Ratings in a note, referring to state-owned enterprises in China.
The remarks came after Chinese commodities trader Tewoo Group- owned by the Tianjin government - failed to repay its U.S. dollar-denominated debt last week, in what has become the largest default among SOEs in the country in about 20 years. It was the first state-backed company to default since 1998.
Some have even predicted that China may increasingly withhold bailouts to its state-owned enterprises, and instead, allow distressed companies to rely on markets-based solutions.
Assessing the recent defaults in China, Nathan Sheets, chief economist at PGIM Fixed Income told CNBC on Wednesday:
"I interpret this from the perspective of President Xi (Jinping)'s ongoing de-risking campaign, trying to increase the financial discipline in the system."
He said it was significant that Chinese leaders now "feel comfortable enough about the outlook that they're willing to let some firms fail."
"It's discipline, that's the way it's supposed to work," said Sheets, who was Under Secretary of the Treasury for International Affairs under the Obama administration from 2014 to 2017.
Chinese corporate debt has been under the spotlight recently, as analysts warned of record levels of defaults.
Moody's Analytics told CNBC on Tuesday that Chinese corporate debt is the "biggest threat" to the global economy...