The first corporate bankruptcy in China already happened. The solar equipment manufacturer Shanghai Chaori Solar Energy Science and Technology failed to make payment over the bond issue worth of 1 billion CNY issued in 2012. The company warned earlier this week that can provide just under 5% of the required about 89 million CNY (14.5 million USD) for the payment.
The company announced that will make everything possible to minimize the losses of the bonds holders. In recent years, the local governments usually intervene in the last minute and saved from bankruptcy the local companies. The precedent, however, is likely to cause a reassessment of the credit risk in the country. According to the analysts the bankruptcy of Chaori indicates that the government will allow the market to decide the fate of the irregular borrowers.
Most probably the experts comment that the Chinese government wants a few selected failures to deal with the problem. In the past either the state or the local government intervened and prevent the bankruptcy. Now the government wants to adapt and to generate failures and take more risks, but will not allow them to be systematic. It is very difficult to assess how this will affect the mood of the investors, but now is a period in which the liquidity is relatively tight. The government should make something for that, as most probably this corporate failure is their respond to the business.