DP15135 Who Bears Risk in China's Non-financial Enterprise Debt?

Author(s): Ronald W. Anderson
Publication Date: August 2020
Keyword(s): bankruptcy reform, Chinese securities markets, corporate bonds, implicit guarantees, State capitalism
JEL(s): G3, H2, K4, P2
Programme Areas: Financial Economics, Development Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=15135

This paper analyses of how risk is allocated in China's markets for debt issued by non-financial enterprises. Compared to other major corporate bond markets China's is unusual in that unlisted, state-owned enterprises account for a large fraction of the debt issued and that the foundations of the corporate and bankruptcy law are young and still evolving. The implications of these features are described and quantified. The results show that the major changes in relative pricing across different market segments cannot be explained well by standard measures of solvency and liquidity. Rather, the most successful explanation is that major policy actions have had the effect of withdrawing implicit guarantees from private issuers and making more explicit the limits of guarantees afforded to state issuers.