A rising tide of corporate debt defaults is sparking some concern that another banking crisis may be just around the corner. More than 20 Chinese firms have failed to meet bond or loan repayments so far this year, many of them the victims of monetary tightening as Beijing tries to ward off financial risks by reducing borrowing levels. With bonds worth about CNY20 trillion due to expire within the next year, and tighter liquidity making it difficult for indebted companies to access new financing, there are fears the number of defaults could start to spiral.

“Investors are getting skittish about the defaults, fearing that more will come in the next few months,” said Wang Feng, Chairman of Ye Lang Capital, a financial services company based in Shanghai. “The financial regulators are standing firm in deleveraging the economy, and it is certain that dozens of debt-ridden corporate borrowers grappling with the cash squeeze will have difficulties in repaying loans.” Nonetheless, some analysts and business executives contend that any panic at this stage is premature. Gao Ting, head of China strategy at UBS Securities, said the defaults only represented a small portion of the country’s corporate debt market, which is valued at USD2.8 trillion. “No high risks have been seen yet,” he said. “The defaults are not likely to have an impact on the overall market.”

According to data provider Wind Information, 12 listed companies have defaulted on repayments for 20 bonds worth a combined CNY16 billion in 2018, including a CNY2 billion bill sold by a principal unit of asset buyer CEFC China Energy. As the central bank keeps tightening liquidity, it is likely that some of the corporate borrowers, unable to access new financing, will fail to repay the principals and interest.

China’s debts at the end of last year’s second quarter represented 268% of the country’s economic output, according JP Morgan. It was not until March 2014 that China’s bond market saw its first default when Shanghai Chaori Solar Energy Science & Technology failed to make an interest payment. Prior to that, the authorities would step in to bail out struggling corporate borrowers with cash injections or restructuring plans to ensure repayments would be made, the South China Morning Post reports. S&P Global Ratings said in January that China is likely to see its first bond default by a local government this year as the deleveraging efforts by Beijing continue.

Two foreign ratings agencies — Fitch Ratings and S&P Global Ratings — have announced that they plan to launch their own companies in China, amid the further opening-up of the financial sector as they target the huge potential of the world’s third largest bond market. Fitch sold its 49% equity interest in China Lianhe Credit Rating Co to Singapore’s sovereign wealth fund GIC in January, after jointly running the business since April 2007.