Fuguiniao, a Hong Kong-listed shoe and garment manufacturer, recently became the fifth mainland Chinese company this year to default on its bonds. Like many other companies that have been unable to repay or refinance their debts, Fuguiniao had embarked on an overly ambitious expansion plan. Its financing costs rose by two percentage points as profits turned into losses in the first half of last year, according to data from Mizuho Securities Asia.
Unfortunately for China, Fuguiniao is far from alone. "Policy driven deleveraging is causing difficulties," said Christopher Lee of Standard & Poor's Financial Services. "Higher funding costs could tip some companies into distress that depend on refinancing to roll over their debt." In the first six months of 2018, Chinese companies defaulted on 18 publicly traded bonds, compared to 23 in the whole of 2017, according to Gavekal, a Beijing-based research company.
