BOFIT Viikkokatsaus / BOFIT Weekly Review 2016/31
While there is still relatively little foreign investment in China’s markets, foreign investment has increased significantly this year for three main reasons: China has relaxed its regulations on foreign investment, yields are quite low in developed economies and investors have moved their biggest concerns over Chinese economic growth to the back burner.
As growth of the Chinese economy slows and economic structures evolve, an increasing number of Chinese firms are expected to face difficulties servicing their bond debt. This year, at least 17 firms have defaulted on either interest or principal payments. The number of defaulting firms is nearly as high as for all of 2015 and the defaults include multi-billion-yuan bond issues. Heavily indebted firms involved in overcapacity branches such as steelmaking and shipbuilding seem to be in the worst shape. Programmes to convert bond debt into company shares have generally been met with low enthusiasm in the bondholder community.