[EdwinSm]

This could have gone in news, but the wide implications could affect the Chinese economy (although I am not sure it is big enough news to do so) - it is also energy related news:

Solar panel maker Shanghai Chaori Solar Energy Science & Technology has defaulted on interest payments owed on its bond, say media reports quoting the firm.

It is the first Chinese firm ever to default on its onshore corporate bonds.

On Tuesday, the firm warned it would be unable to make a 89.8 million yuan ($14.6m; £8.7m) interest payment on a one billion yuan bond issued in 2012.

The default is seen as a test case for the Chinese government.

Investors have assumed in the past that the Chinese government would bail out any Chinese corporation in danger of defaulting.

The move to allow Chaori to default signals a new stance.

"There's never been a corporate bond default, [so] investors have been conditioned that there is no such thing as risk in China," Leland Miller, president of research firm China Beige Book, told the BBC.

"The Chinese leadership is trying to break down this misunderstanding that everything is backstopped."
...

Chaori solar logo Chaori Solar took out a $1bn bond two years ago to help finance operations

That is why the Chinese government may be making a strategic decision to let some firms fail - particularly those, like Chaori, that may not have a huge knock-on effect in the market.

China's solar industry has been suffering from an overcapacity problem for some time, as cheap financing and local government support led to a glut of firms entering the industry.

.....

Bank of America analysts wrote in a recent note that the default could be "China's Bear Stearns moment".

"In the US, it took about a year to reach the Lehman stage when the market panicked and the shadow banking sector froze," they wrote.

"We assess that it may take less time in China, as the market here is less transparent."

[rollin]

Looks like the Chinese government is going to allow some market forces to take hold in the country rather than backstopping everything. Probably too much PV cell manufacturing capacity at the moment.

[Loki]

This default is just the tip of the iceberg. China is swimming in bad debt.

A dangerous build-up of debt and an explosion of risky and poorly regulated shadow banking have raised serious concerns about the health of China’s economy. That’s why the Chaori default — the first ever in China’s domestic corporate bond market — has sparked fears that the country could be headed for a full-blown economic crisis like the one that slammed Wall Street in 2008. “We believe that the market will have reached the Bear Stearns stage,” warned strategist David Cui and his team at Bank of America-Merrill Lynch in a report to investors.

The concern of Cui and others is that the Chaori default will be the tip-off point for an unravelling of China’s financial system. The default could wake investors and bankers to the realization that companies they thought were safe bets are potentially not, and they could begin to reassess other loans and investments to other corporations. In other words, they might start redefining what is and is not risky. That could then lead to a credit crunch, when nervous bankers become wary of lending money, or lending at affordable interest rates. More bankruptcies could result. That eventually causes the financial markets to lock up — and we end up transitioning from a Bear Stearns moment to a Lehman Brothers moment, when the financial sector melts down.

http://time.com/15368/has-china-reached ... ns-moment/

China's shadow banking system is out of control and under mounting stress as borrowers struggle to roll over short-term debts, Fitch Ratings has warned.

The agency said the scale of credit was so extreme that the country would find it very hard to grow its way out of the excesses as in past episodes, implying tougher times ahead.

"The credit-driven growth model is clearly falling apart. This could feed into a massive over-capacity problem, and potentially into a Japanese-style deflation," said Charlene Chu, the agency's senior director in Beijing.

http://www.telegraph.co.uk/finance/chin ... story.html