Defaults feared as China firms face up to debt addiction

Shanghai

CHINA'S leverage crackdown is forcing local companies to confront their addiction to short-term bond sales that they use to roll over debt. The shock therapy is worsening the outlook for corporate defaults in the second half of this year after borrowing costs jumped to a two-year high.

With yields surging, Chinese non-banking firms sold 131 billion yuan (S$26.5 billion) of bonds with a maturity of one year or less in May, the least since January 2014 and less than half of the same month last year, according to data compiled by Bloomberg. About 87 per cent of the short note sales last month will be used for refinancing, according to Bloomberg data.