Local guarantees and SOE bond pricing in China

Yabin Wang and Sharon Xiaohui Wu

China Economic Review, 2023, vol. 78, issue C

Abstract: We study the changing landscape of credit market guarantees by examining the risk-pricing of the Chinese state-owned enterprise (SOE) bonds, which have experienced rising defaults across provinces from a zero record. Using primary market bond issuance data, we identify a province premium that captures the perceived local government support for local SOEs. We find that on average the perceived local government support is on the decline, while the subnational debt market has become more segmented since 2018. This evidence is found to be closely related to the divergence in local government’s fiscal space and the occurrence of SOE default incidents in the area, highlighting the adverse linkage between public debt and corporate financing costs.

Keywords: Segmentation; Bond market; Local SOEs; Local public debt; Government guarantee; Default; China (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:chieco:v:78:y:2023:i:c:s1043951x23000056

DOI: 10.1016/j.chieco.2023.101920

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