In December 2019, a worker cut down a coal cart at a coal mine in Mentougou, western Beijing. Many coal mines have been closed as China scrambles to reduce carbon dioxide emissions.
Gregg Baker | AFP | Getty Images
Beijing-Nomura’s analysis shows that China’s bond defaults are increasingly concentrated in some countries that may face greater pressure from stricter new regulations on carbon emissions.
Nomura estimates released in a report on April 27 that 15 regions in northern China, including Beijing and Inner Mongolia, accounted for 63.4% of last year’s government bond defaults, up from 51.5% in 2019. ..
This is the latest sign of widening domestic economic inequality, with GDP and population growth in the north already lagging behind that in the south. Currently, China’s commitment to reduce carbon emissions by 2030 means that the northern economy is facing production restrictions.
“The new environmental campaign could hit northern China, where most of steel, aluminum and other raw materials are produced and processed,” Nomura said.
“Most of these steel and aluminum plants are in low-rise (underdeveloped) cities, so the public finances of these cities are likely to be disproportionately impacted and increase the risk of credit defaults,” they said. Said.
There are many state-owned enterprises and heavy industries in northern China.This is China Reduce the role of state-owned enterprises in the economy, Causes many workers to lose their jobs.
Meanwhile, southern China has more export hubs like Guangdong and Jiangsu. The region was an early beneficiary of China’s move to count Shanghai and Shenzhen as major cities and allow more foreign and private sector entry into the relatively closed domestic market.
Historical factors, as well as overcapacity accumulated after the 2008 financial crisis, have contributed to the further weakening of the north, according to Nomura analysts. They estimate that northern China contributed only 35.2% of GDP last year and per capita GDP contributed to about three-quarters of southern China.
The north also depends on debt. According to Nomura, corporate bonds’ share of GDP in northern China rose to 52% in 2020, compared to 30% in southern China.
“The north-south gap can be a key factor in credit differentiation in the coming years,” the report said. “Sure, we have already observed some deterioration in North China’s ability to raise money from the bond market.”
According to analysts, the North accounted for 10% of national corporate bond issuance in the first quarter, down from 42% last year.
Pressure on the north is increasing, especially as defaults increase across China, especially among state-owned enterprises that investors assumed to have received implicit government support.
Ivan Chung, head of the Greater China credit bureau and analysis team at Moody’s, said that while default levels are still significantly lower than the market as a whole, this trend will allow investors to distinguish between different bond issuers. Stated.
Mr Chung said the issuer canceled bond issuance last month or so for two different reasons. One is that the issuers were too weak to attract enough investors’ appetite. Second, despite good quality, market sentiment has pushed up bond costs and bond prices are too high.
Investors worried about it in April, with some signs of growing concern Huafu Asset Management, a state-owned non-performing loan manager, cannot make payments.
Separately, the 24 companies, supported by the Henan Provincial Government, will set up a 30 billion yuan ($ 4.6 billion) fund to assist local businesses in the event of debt risk. Chinese financial media site Caixin reported, Quote government officials. Henan is part of Nomura’s “North China” designation.
As China sees Balance growth with reduced carbon emissions, The tapering pressure on carbon-rich projects may not be sufficient.Private management Renewable energy companies can find it difficult to raise money From a system where the largest banks are state-owned and likewise prefer to lend to state-owned enterprises.
One option for funding renewable energy projects is: Issued “green” bonds, of which $ 15.7 billion worth According to Reuters, it was sold in China in the first quarter, citing Refinitiv data. The amount was almost four times that of a year ago, the report said.
Foreign investment institutions such as the World Bank’s International Financial Center are also becoming more and more involved. The project plans posted by IFC on the website for China include wastewater treatment and solar power generation.
IFC’s funding in China has increased from $ 500 million a year 15 years ago to $ 1 billion more recently, with about 60% being climate-related, regional director and country in the East Asia Pacific region. Manager Randall Riopelle said. China for IFC.
China’s promotion to reduce carbon emissions boosts risks in the north
Source link China’s promotion to reduce carbon emissions boosts risks in the north