01
How many thunder are there in real estate enterprises? Before the United States began this round of interest rate hikes, in the past in the international capital market, the dollar, the euro, the yen, the currencies of these developed countries, basically zero interest rates. Conversely, the loan interest rate on our side is generally above 5%, which is still the best quality mortgage interest rate, and other loan interest rates are higher.
What does this lead to? That is, many domestic enterprises went to the international for financing, which seemed very cost-effective at that time, because the international financing cost was low, and the interest rate gap was attractive enough. But what seems so good on the surface, is there a risk in it?
Of course, there are, there are two great potential risks, one is the change of the exchange rate, if the exchange rate is 6.3 when borrowing, if the exchange rate is 7.3 when repaying the money, then it can be a big loss. Another is that many enterprises have been engaged in borrowing new to pay off the old, and if the dollar interest rate rises one day, then borrowing new and repaying the old will not be able to continue.
Now these two problems are happening almost simultaneously. One is that the exchange rate was around 6.3 last year, and now it is 7.2. The other is that the interest rate on the dollar has risen from 0 last year to 5.5% now. This means that both of them are developing in the most unfavorable direction for borrowing dollar debt. This is a big challenge for many companies that borrow US dollar debt.
According to the United Credit Data, in the second quarter of 2023, the issuance scale of Chinese-funded US dollar bonds hit a new low since the fourth quarter of 2013: a total of 656 Chinese-funded US dollar bonds were issued in the primary market, with an issuance scale of only US$9.221 billion, a sharp decline of 49.57% month-on-month and 66.85% year-on-year, respectively. A total of 183 Chinese-funded US dollar bonds were issued in July, with a total issuance scale of US$2.339 billion, down 43.09% month-on-month and 81.97% year-on-year, respectively.
From the perspective of net financing by industry, the net financing of US dollar bonds in real estate, urban investment and finance industries is negative. That is, now it is basically impossible to borrow US dollar debt, the interest rate is too high, and the exchange rate is not suitable, so it is basically impossible for many enterprises to borrow new and repay the old. So this has also led to a number of dollar bonds beginning to default since last year.
According to Wind data, since 2022, the number of defaults on Chinese dollar bonds has exceeded 100, and new US dollar bonds have been exposed almost every month. This situation has also led to a lack of confidence in the market, the main problem is actually the debt borrowed by real estate companies in the past, and now the market is not good, how to solve the debt, is indeed a problem.
02
Will a debt explosion trigger a systemic crisis? Now we hear bad news from time to time, mainly concentrated in real estate companies, their dollar bonds or domestic bonds, defaults. But how big is this scale, and will it trigger a systemic debt crisis?
We can look at the relevant data and then measure the risk from a macro perspective.
The current market size of China's dollar bond stock will be about $976 billion by the end of 2022. From the perspective of industry distribution, the stock of Chinese-funded US dollar bonds is mainly distributed in the financial, real estate and urban investment sectors, of which the financial sector is the largest, with an existing amount of US$354.2 billion, accounting for about 36%, real estate bonds of US$171.1 billion, accounting for 17%, and urban investment of about US$80 billion, accounting for about 8%.
It should be said that the main risk is still in real estate debt, and the total scale of real estate debt, this year may appear a downward contraction inflection point, we see the total risk here, about 171.1 billion US dollars, overall is certainly controllable.
In addition to the scale, there is also the problem of seeing the period time. Whether it is the exchange rate or interest rates, there may also be a problem of time for space, which is to see if it can survive after the Fed turns into a rate cut cycle. Let's start by looking at the size of US dollar bonds maturing in the next year?
According to Bloomberg statistics, as of the end of the second quarter of 2023, a total of 948 Chinese dollar bonds matured during the year, with an outstanding size of US$57.494 billion, and US$30.229 billion and US$27.266 billion of Chinese-funded US dollar bonds maturing in the third and fourth quarters respectively. From the perspective of the scale of monthly outstanding payments, the peak of debt repayment in the second half of the year was mainly concentrated in September and October, and the scale of monthly maturity exceeded US$13 billion.
Then there's the main thing about the expiration of the next two years.
In the existing Chinese dollar bond market, the number of short- and medium-term bonds with an original maturity of less than 3 years accounts for about 44%, and the balance accounts for about 21%. The number and balance of 3-5 year bonds are about 26%. The number of bonds with 5-10 years is 18%, and the balance is as high as 29%.
Basically, the total size of maturing within 3 years is less than $210 billion, and if we look at it from a macro perspective, one is our balance of payments, which has a large annual surplus and foreign direct investment, and the other is that there are more than $3 trillion in foreign exchange reserves. From these two points, dollar bonds are a hurdle for some enterprises, and in terms of macro risks, it is basically impossible to constitute a systemic crisis.
On the contrary, one point is that those who make investments should see clearly in turn, who is the key to debt default? Now is the window of time, if we use the window period to seize the time to clear mines, is it a more important reason? If it is, although it cannot be proved that this is the best time for the macro environment, it is certainly not as bad as they say, otherwise these things would not have happened at this time.