Understanding China’s Evolving Credit Risk Maze
33 Pages Posted: 28 Feb 2019
Date Written: February 11, 2019
This paper analyses factors that account for credit risk in the Chinese market for bonds issued by non-financial enterprises. By exploring a data set of covering monthly observations of individual corporate and enterprise bonds a number of important structural features of the market are seen to account for cross sectional and time series variations of yield spreads. The analysis sheds light on the issue of implicit government guarantees. The results suggest that steps taken by Chinese authorities to restructure local public finance are concentrating such guarantees to a few segments and are bringing greater financial discipline to other segments of the market.
Keywords: Credit Risk, Implicit Guarantees, Chinese Capital Markets, Local Public Finance
JEL Classification: G12, G18, G32, G33, H71, P52
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