What they'd gain in export competitiveness pales in comparison to the immediate increase in yuan needed to buy dollars to service and repay this debt.
And compared to the total amount of dollar denominated Chinese debt outstanding, this report is just scratching the surface.
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New data compiled by Bloomberg, warns that 2020 could be the year of meltdowns in China's domestic bond market.
The report said, "a looming wall of dollar debt," issued by borrowers who are experiencing rapid financial deterioration, might have extreme difficulty in repaying $8.6 billion of offshore bonds coming due next year that have 15% yields.
This equates to 40% of the total outstanding corporate dollar bonds from China's most distressed companies comes to maturity right before the 2020 US presidential election, and also, at a time when the global economy could be in a trade recession.
This is a market where you want to go for safer bets rather than be a hero," said Michel Lowy, chief executive officer at Hong Kong-based SC Lowy, which specializes in fixed income. "We are on the verge of a massive snowball effect," where defaults spur funds to take money out of high-yield debt, driving up yields and making it all the harder for firms to refinance, he said.
Wonnie Chu, managing director of fixed income at GaoTeng Global Asset Management Ltd., revealed to Bloomberg that many of these companies acquired cheap debt during 2017/18, the period of synchronized global expansion.
Chu said a lot of the debt was issued with a "low-interest-rate not comparable to the credit risk." She added that a full-blown shock will likely be avoided but adds that stress will certainly be seen next year among borrowers.