There is no clearer sign that China’s economy is back to normal than the return to centre stage of concerns about property developers, the bad debts of SOEs and financial risks. Regulators’ tolerance for defaults ebbs and flows with their confidence in the economy, and this month’s total will be close to a record high. The fact that defaults are accelerating is not in itself alarming – credit risk is needed to instil more discipline in credit markets. More worrying are suggestions that some of the firms involved had transferred some assets to related firms prior to the defaults to protect them from creditors.
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