Onshore bond and loan defaults in China have increased
substantially in recent years, a situation which has led
regulators to strengthen their control of creditors. Many of
these are banks seeking direct repayments from their defaulting
clients.
But increased regulatory oversight in onshore default
scenarios is preventing creditors, such as domestic banks, from
enforcing their rights or foreclosing
loans.
"Although understated, government authorities sometimes
actively intervene in respect to onshore defaults," said
Rose Zhu, partner at Baker McKenzie. She added that the
government has shown signs of strengthening its control, since
the second half of 2016, when defaults became more frequent and
with more severe economic impact.
According to Dealogic, since December 2014, 585 loan deals
totalling $325 billion have been signed between domestic PRC
corporates – both public and private – and
onshore banks. Out of this total, 554 are classified as
leveraged loans while the...