China is close to show record year in regards to corporate bonds defaults, Bloomberg reports.

This year Chinese companies already missed payments on state bonds accounted for $16,5 billion yuan ($2,5 billion). Total volume of such payments in 2016 was 20,7 billion yuan. The situation will get even worse, if credit ratings of corporations will be lowered with the same pace as now. Rating agencies, including Dagong Global Rating Co., reduce rating with unprecedented speed.

Experts note that profit of corporations declines, and we shall not expect any improvements among slowing economic growth.

Corporate bonds market is largely represented by local investors, since foreign investors are more attracted by government-linked bonds, since China opened access to this market in recent years.

Meanwhile, growing yields make refinancing of maturing debt more complicated for private companies that have limited access to banking system unlike state corporations. People’s Bank of China takes very small steps towards supporting credits to private companies, and borrowing costs show no sign of falling.

This time companies missed payments of at least 20 local bonds. Dagong reduced ratings of 13 companies and upgraded 10.

It seems that regulatory authorities are not concerned too much about this situation, since they do not offer any rescue options. They think that this will result in healthier bond market in the long-term.

Growing tension in trade relations with the US hurts cash flow of corporations. Recent data showed decline in export orders in June. Further weakening of demand and general economic factors will cause increase in default number. It will most likely exceed 2016 level this year and will be at record level.