As 2019 grinds to a close, Chinese corporate defaults surged to a record RMB 130 billion ($18.6 billion).

According to FT, which cited Bloomberg data, this value eclipsed the previous record of Rmb122bn last year. The main cause of Chinese defaults appears to be corporate distress stemming from declining economic growth in China.

Earlier this month, Chinese mutual funds were rocked on their heels after the Peking University Founder Group Co. defaulted on a 2 billion yuan ($285 million) bond. Mutual fund net asset values crashed after the value of the bonds slumped 70%.

The Tewoo group, a commodities trader owned by the city government of Tianjin, forced a haircut on investors in its dollar-denominated bonds. This tantamounts to a default from, surprisingly, a state-owned enterprise. Historically, China has not permitted any state-backed company to default since 1998.

A snowball in the making?

Analysts are worried that Tewoo maybe the precursor to more defaults from state entities down the road in China.

That figure is already at $2.85 billion this year. Meanwhile, in the private sector, those industries that relied on shadow banking, are under pressure. That’s because the spigot of easy credit has dried up in recent years.

Earlier this month, Ma Jun, an external adviser to the People’s Bank of China, warned that a few isolated defaults could trigger a domino action.

“Among the tens of thousands of platform-style institutions nationwide, if only a few publicly breach their contracts it may lead to a chain reaction,” Mr Ma said in an interview.

He suggested that the authorities should stem the risk of systemic platform default.

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