Independent Asian Credit Research, Bondcritic

Warut Promboon

Independent Asian Credit Research

Asian Fixed Income/Frontier Market Research

Bondcritic

Bondcritic, established in 2009, is designed to be an independent credit research voice that helps investors gain insights and unbiased analyses on Asian fixed income market. Our mission is to discover deep-value Asian high-yield and distressed bonds with a bottom-up approach, together with the help of our proprietary ESG (Environmental, Social Development, and Governance) model. At the same time, we focus on bringing investment cases of unrated and unloved issuers to the general public.

Credit

Here, we have wrapped-up the recent fear on the Chinese debt bubble with our new periodical called “The Chinese Credit Chronicle (CCC)”. China is a bicycle economy which will fall down when the economy stops growing at a certain rate, in our view. We believe the minimum real GDP growth rate is c.5%. China’s real GDP growth was 2.3% in 2020, according to China’s National Bureau of Statistics. The 2.3% GDP growth achieved with the effective control of COVID-19 and without much government stimulus remains impressive, in our view, only if we believe this GDP growth is authentic.
Now comes the core of the problem. We have seen leverage in China being extended because of cheap funding costs rather than borrowers’ repayment capability.  Not to mention a shadow banking sector which the China Banking and Insurance Regulatory Commission (CBIRC) once estimated at RMB84.8trn in 2019 or 29% of total banking assets in 2019, leverage was injected officially into ineffective and poorly-managed borrowers such as local government financing vehicles (LGFV). In addition, with China’s urbanization, the demand for residential and commercial properties has risen in tandem with leverage of the Chinese property sector, hence concentrating the leverage in the sector.
Many market participants in China seem to have gambled that China’s growth music will continue playing and when loan growth continues, non-performing loans may not be a big problem. We believe the music has stopped and the Chinese government seems to have agreed with us.
Here, we have raised three anecdotes on the Chinese debt bubble and how we see the situation going this year: China Evergrande (<a href="https://www.smartkarma.com/entities/china-evergrande-group" target="_blank" data-smartkarma-citation="entities:479:1" rel="noopener">Evergrande Real Estate Group (3333 HK)</a> , <a href="https://www.smartkarma.com/entities/hna-group-co-ltd" target="_blank" data-smartkarma-citation="entities:25987:1" rel="noopener">HNA Group (HNAGRZ CH)</a> , and <a href="https://www.smartkarma.com/entities/china-huarong-asset-management" target="_blank" data-smartkarma-citation="entities:968:1" rel="noopener">China Huarong Asset Management (2799 HK)</a> .

Here, we have wrapped-up the recent fear on the Chinese debt bubble with our new periodical called “The Chinese Credit Chronicle (CCC)”. China is a bicycle economy which will fall down when the economy stops growing at a certain rate, in our view. We believe the minimum real GDP growth rate is c.5%. China’s real GDP growth was 2.3% in 2020, according to China’s National Bureau of Statistics. The 2.3% GDP growth achieved with the effective control of COVID-19 and without much government stimulus remains impressive, in our view, only if we believe this GDP growth is authentic.
Now comes the core of the problem. We have seen leverage in China being extended because of cheap funding costs rather than borrowers’ repayment capability.  Not to mention a shadow banking sector which the China Banking and Insurance Regulatory Commission (CBIRC) once estimated at RMB84.8trn in 2019 or 29% of total banking assets in 2019, leverage was injected officially into ineffective and poorly-managed borrowers such as local government financing vehicles (LGFV). In addition, with China’s urbanization, the demand for residential and commercial properties has risen in tandem with leverage of the Chinese property sector, hence concentrating the leverage in the sector.
Many market participants in China seem to have gambled that China’s growth music will continue playing and when loan growth continues, non-performing loans may not be a big problem. We believe the music has stopped and the Chinese government seems to have agreed with us.
Here, we have raised three anecdotes on the Chinese debt bubble and how we see the situation going this year: China Evergrande (Evergrande Real Estate Group (3333 HK) , HNA Group (HNAGRZ CH) , and China Huarong Asset Management (2799 HK) .

The Chinese Credit Chronicle: The CCC Danger

China

CHINAGOV CDS USD SR 5Y D14 (CCHIN1U5 CORP)

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The Chinese Credit Chronicle: The CCC Danger

Here is our first Chinese Credit Chronicle (CCC) to track the debt bubble in China. China Huarong could be the first domino to fall.

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