(Yicai Global) July 26 -- With the Chinese government taking measures to improve the corporate financing environment, the default rate on US dollar bonds among Chinese firms has shrunk and the risk of default is relatively controllable in the short run, according to analysts.

Four Chinese companies, each private and in real estate, newly defaulted on dollar bonds or debt replacement in the first half, far fewer than that in the same period of last year and the second half of 2022, Zhang Shuncheng, associate director of China corporate research at Fitch Ratings, told Yicai Global.

Since the fourth quarter of 2021, most defaults on dollar bonds issued by Chinese firms have been in the real estate sector, and many defaulters have deferred on bond redemption via debt replacement or restructuring, so new defaults in the short term will remain at a low level, Zhang said.

The number and value of defaults on overseas bonds by Chinese businesses dropped in the first three months of this year, according to Sharon Ou, senior credit officer at Moody’s Investors Service.

Speaking to Yicai Global, she predicted that default on overseas bonds by Chinese firms will ease in the next 12 months as the government has taken measures to support the property sector and improve the financing environment.

The cost for Chinese companies to issue dollar bonds is much higher than selling bonds in China, as the US Federal Reserve raises interest rates, Zhang noted. And coupled with the recent depreciation of the Chinese yuan, the number of dollar bonds issued by Chinese firms will remain low in the second half, he added.

There is a lot of uncertainty over whether most private Chinese developers in financial straits can redeem extended dollar bonds if there is no significant and sustainable improvement in China’s new home sales in the future, Zhang warned.

Editors: Dou Shicong, Peter Thomas