Defeating or delaying the defaults: bailout strategy of the Chinese government for its state-owned enterprises on their bond payments

Abstract

In financial world, states find bonds as a lucrative way to avail credits from international market to meet its financial deficits. China is not an exception. With the expansion of Chinese bond market and recent default incidents of some of its state-owned enterprises (SOEs) on their bond payments, it is high time to figure out the possible way-outs and prepare for the way-outs. From the existing practices of international bond market, restructuring and bailout are the two most common forms of non-judicial remedy. Since the emergence of Chinese bond markets, Chinese government is found to bailout its SOEs to prevent default on their bond payment because such default would result in banking crisis including instability among the retail investors, as occurred in Greece and Argentina in recent times. However, the recent trend shows there has been a change in the strategy of Chinese government to let its SOEs survive from the debt crisis by itself. After analyzing the Chinese bond market and its bailout strategy through the comparative and qualitative methods, bailing out has been found as a provisional way out for the Chinese economy to delay the debt crisis, whereas long-term sustainable reforms are required for the SOEs.