China fact of the day

by on July 27, 2015 at 6:56 am in Current Affairs, Data Source, Economics | Permalink

Around 97% of existing yuan-denominated bonds hold ratings of double-A to triple-A—the best a company can get.

That is from Fiona Law, cited by Christopher Balding, and ultimately Alex Frangos, those are ratings from Chinese sources.  Law reports:

With nine Chinese ratings firms to choose among, “bond issuers are encouraged to pick the highest ratings among agencies,” said Guan Jianzhong, chairman of Dagong Global, the country’s third-biggest ratings company in terms of market share. The fact that the bonds are rated double-A-minus or above, they “are not without risks,” he said.

By the way, the Shanghai Composite Index closes down 8.5%.

1 jonathan July 27, 2015 at 7:41 am

“By the way, the Shanghai Composite Index closes down 8.5%.“

Newsworthy, to be sure, but I’m not sure I see the connection. The popularity of arguments that follow the pattern, “A bad thing happened today, also this unrelated fact exists, therefore the Chinese economy is in deep trouble,” is more than a bit mystifying.

2 JWatts July 27, 2015 at 2:18 pm

It’s not unrelated. Market sell off’s are triggering losses and in some cases forced sales to cover leveraged positions. It’s my understanding, (possibly wrong) that many Chinese organizations with bonds are invested in the stock market and their bond payback schedule could be in jeopardy if they take stock market losses.

3 Axa July 27, 2015 at 7:52 am

Are you worried of the volatility of equities? Don’t worry, buy super safe AAA bonds or great yield derivatives evaluated by super credible rating agencies. I don’t recall any situation like this before. Economists knows nothing. This time is different, engineers are in charge of the economy.

4 Todd July 27, 2015 at 8:28 am

What is the ratings range of dollar denominated bonds in China? Is it stronger?

5 Barkley Rosser July 27, 2015 at 5:53 pm

econospeak.blogspot.com/2015/07/is-chinas-problems-responsible-for.html

Apologize for bad grammar in title link, fixed in actual title, assuming this works.

6 Barkley Rosser July 27, 2015 at 5:59 pm

I don’t this link works, but the post was put up Friday, and the quick and dirty is that China may be a major factor in various sliding global markets because, despite reporting a 7% annual GDP growth rate for the second quarter recently:

1. As of March, electricity production/consumption had fallen 2% over the past year.
2. As of May, oil imports were down 11% over the previous year.
3. Truck sales have fallen very sharply.
4. Capital flilght rates may have quadrupled over the last two years or so.

Also, it appears that the Chinese government has been using extraordinary measures to try to prop up their stock market. If indeed the market fell 8.5% today as Tyler reports, it may be that those efforts have collapsed. It looks like the Chinese may be manipulating aggregate data, as they have done in the past. Very unclear what is really going on or where this may end up.

7 David B July 27, 2015 at 6:43 pm

What’s the equivalent % of AAA bonds for the USA?

8 ohwilleke July 27, 2015 at 9:14 pm

“The bonds of 95 percent of U.S. companies with revenues over $35 million—and of all companies below that amount—are rated noninvestment grade or junk.” from http://www.econlib.org/library/Enc1/JunkBonds.html

but, that really isn’t comparable to the collection of large cap companies traded on major stock markets at issue here.

There are on the order of 30,000 publicly trade companies, about 4,000 of which are traded on stock exchanges, a similar number of which are traded on the NASDAQ, and the remainder of which are traded in the OTC market only. Investment grade bonds, however, are issued only by a modest subset of the 8,000 or so companies traded on stock exchanges or the NASDAQ. Only about 15% of NASDAQ companies have publicly traded bonds, while stock exchange listed companies often have multiple publicly traded bond issues. My guesstimate would be that something like 500-1000 companies in the U.S. have investment grade bonds (roughly corresponding to the definition of large capitalization). Maybe a quarter or so of stock exchange traded companies have at least one investment grade bond issued.

(The same company may have different bond issues of different ratings, for example, if it has senior bonds which are investment grade, and subordinated bonds, which have a junk rating).

9 ohwilleke July 27, 2015 at 9:27 pm

More precisely: 800 companies have investment grade bonds out of 23,000 U.S. companies with revenues over $35 million reviewed by bond rating agencies. Only about 1,800 companies with non-investment grade bonds, however, have actually issued publicly traded bonds. So, about 30% of publicly traded bonds are investment grade, and only about 0.1%-0.2% are AAA rated.

https://books.google.com/books?id=ASJufdq3zKcC&pg=PA4&lpg=PA4&dq=how+many+companies+have+revenues+over+$35+million?&source=bl&ots=mAJJxqJKtP&sig=ctF1Ib7Qyu6hT52vSqpCoH9a3hI&hl=en&sa=X&ved=0CFEQ6AEwCGoVChMIx6zU-NT8xgIVCI6SCh2rlgYI#v=onepage&q=how%20many%20companies%20have%20revenues%20over%20%2435%20million%3F&f=false

10 ohwilleke July 27, 2015 at 9:20 pm

A better source notes that on April 11, 2014, there were only three companies with AAA credit ratings in the U.S. according to S&P.
http://americasmarkets.usatoday.com/2014/04/11/downgrade-only-3-u-s-companies-now-rated-aaa/

Those companies were Johnson & Johnson, Exxon-Mobil, and Microsoft. “The number of companies with the top-credit rating has been dwindling for years. Back in 1980, there were more than 60 U.S. companies rated AAA by S&P. That fell to six in 2008. Since then,” General Electric, Pfizer and ADP were downgraded.

I wouldn’t be surprised if four or five companies had AAA credit ratings now.

11 TallDave July 28, 2015 at 11:53 pm

See, China is the safest place in the world to invest.

12 jacob July 31, 2015 at 3:13 pm

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