As widely anticipated, troubled Shanghai Chaori Solar Energy Science and Technology Co. failed to make the scheduled interest payment on a bond this Friday, 7th March 2014. Chaori could barely scratch together five percent of the 89 million yuan due. Unlike Credit equals Gold No 1 no one stepped up to bail out Chaori.
While small, some describe this as a “Watershed” or “Bear Stearns” moment.
The default in the PV Solar Cell Manufacturer is expected to mark the first of many onshore bond defaults for China that will occur in industries suffering from overcapacity such as steel, nonferrous metals, coal, renewable energy & of course real-estate. The near default of Credit equals Gold No 1 on the 31st January resulted from a trust holding bad loans to and equity in coal miner Shanxi Zhenfu Energy Group who collapsed in 2012 and had since ceased production.
Some analysts, including ones from Bank of America, call Friday’s default a “Bear Stearns moment” signalling the start of the Chinese shadow banking crisis, much like Bear Stearns was to the US subprime crisis.
Overnight Copper prices posted the biggest decline since 2011 in heavy volume caused by concerns of slowing growth in China from rising debt and defaults.
The default is expected to accelerate the number of individual bond holders who have been assessing risk and seeking out “less risky” investments such as Australian & Canadian Real Estate. On February 11th, Canadian Finance Minister Jim Flaherty announced the axing, effectively immediately, of a 28 year old visa scheme attracting wealthy foreigners to Canada. On the other hand, the Abbott Government is set to expand our residency visa scheme to the Chinese in what some suggest may cause an even greater housing bubble and further destabilise the already distorted Australian economy at a time when the Reserve Bank is sounding alarm bells.
» Watershed moment for China markets with Chaori Solar bond default – The Sydney Morning Herald, 7th March 2014.
» China Gets 1st Onshore Bond Default as Chaori Doesn’t Pay – Bloomberg, 8th March 2014.
» China Bear Stearns Moment Seen by BofA in Solar Default – Bloomberg, 7th March 2014.
» Copper tumbles after China bond default – The Financial Times, 7th March 2014.
» Shunned Chinese buyers to turn from Canada to Australia – The Sydney Morning Herald, 24th February 2014.
» Visas for wealthy to be expanded – The Australian Financial Review, 8th March 2014.
» Credit equals Gold No 1. – Who Crashed the Economy, 29th January 2014.
» GFC2 – Will it be made in China? – Who Crashed the Economy, 30th June 2013.