China's financial regulators are calling for a clearer and fair handling of defaults to regain investor trust in the world's second-biggest bond market after repayment failures reached new peaks this year.
According to a statement from the People's Bank of China, senior officials from the central bank, the securities regulatory body, the supreme court and other departments discussed court-mediated resolutions of loan defaults during a conference in Beijing late Tuesday.
Improving the mechanism for dealing with bond defaults will be necessary to avoid and address financial risks, and this must be done in a market-based manner that respects the rule of law, the statement quoted Liu Guoqiang as saying, a deputy central bank governor.
Addressing Repayment Delays
Zou Lan, a senior official in charge of financial markets at the People's Bank of China urged in the same meeting to address repayment delays more effectively, the state-run Financial News published on Wednesday.
Based on figures released by Bloomberg, China's onshore bond defaults have reached 130 billion yuan this year, surpassing the previous annual record of 122 billion yuan in 2018.
The surge of missed repayments raised concerns about the risks of refinancing and the ability of the government to stabilize financial markets in the midst of slowing economic growth.
All bondholders in the process of settling default disputes must be treated on an equal footing, Liu was also quoted as saying.
Repayment agreements under the table are not unusual in China when businesses have refused to meet their debt obligation. Key measures include prioritizing retail investor rewards over institutional creditors or repaying offshore debt over onshore bills.
Another trick among analysts is when a debtor delays payment, and appears to attempt to negotiate payment extension with creditors by private discussion rather than through a clearing house.
Diversifying Debt Defaults
China has begun to develop a market-based system for bond extension and default debt trading as part of efforts to create a "multi-layer process" to diversify repayment failures, Liu disclosed.
The country will increase cooperation among various bond market regulators, Liu added, with the next focus on improving rules on disclosure of bond market information.
At Tuesday's symposium, Zhou Qiang, Supreme People's Court chief, vowed to improve investor rights security, such as keeping bond issuers more responsible for the disclosure of information.
Yi Hiuman, chairperson of the Securities Regulatory Commission, said in a release that the watchdog would fast-track supervision of bond issuers and intermediary agencies and raise penalties for violators.
