China bond defaults a way to price risks: analysts

Hong Kong

JUST as global investors get a new channel to access China's US$9.8 trillion onshore bond market, it's starting to look like one that they might recognise.

Gone are the days when China's corporate debt was all pretty much priced the same, with an implicit government backstop giving buyers little reason to demand higher returns from some borrowers over others. Things started changing in 2014, when the Communist Party leadership with little warning began to allow defaults. With a steady rise in delinquencies, investors are now distinguishing among issuers based on perceived credit quality.

"We're going much more towards proper market pricing," said Sean Taylor, chief investment officer for the Asia-Pacific region at Deutsche Asset Management in Hong Kong. "What we have now is a lot more differentiation and there are more opportunities to make money." That's good news for anyone contemplating the new Bond Connect, which started on Monday and lets investors buy Chinese bonds through Hong Kong rather than have to register on the mainland. And it puts pressure on China's bond-rating industry, which now f…