Speaker 1: Hello, and welcome to another episode of the Odd Loots Podcast.
Speaker 1: I'm Tracy Allaway and I'm Joe. Wasn't so Joe? You know,
Speaker 1: I just came back from Beijing, yes, and uh, we
Speaker 1: haven't even talked about it yet, but I saw all
Speaker 1: of your pictures and I'm extremely jealous. Yeah, the food
Speaker 1: was very good, and you should be jealous because you
Speaker 1: missed out on quite a lot. But you know, I
Speaker 1: thought you had some lamb thing, like a big, like
Speaker 1: gigantic barbecued lamb that just looked like the best thing
Speaker 1: I've ever seen? Is that? Right? It was so good,
Speaker 1: it was amazing. It was like a Mongolian barbecued leg
Speaker 1: of lamb that you grill at your own little table
Speaker 1: and then you dip it into crushed peanuts and salt,
Speaker 1: and it was good. I'm allergic to peanuts, but what
Speaker 1: everything else sounded amazing? All right, Well, next time you come,
Speaker 1: we will have that without the peanuts. But you know,
Speaker 1: I hadn't been back to Beijing for like thirteen or
Speaker 1: fourteen years, and there were so many changes to the city,
Speaker 1: like really big ones. Whole areas of it are just
Speaker 1: unrecognizable to what they look like in two thousand five,
Speaker 1: two thousand and six. I feel like we should do
Speaker 1: a whole episode at some point, just like you comparing
Speaker 1: Beijing over thirteen years. I bet people would be interested
Speaker 1: in that. I don't think I was as um financially
Speaker 1: minded back in two thousand five and two thousand six,
Speaker 1: but I was going to say, one of the biggest
Speaker 1: changes in that time period has of course been to
Speaker 1: China's capital markets. So thirteen years ago, China didn't really
Speaker 1: have much of a corporate bond market, and now it
Speaker 1: has a pretty big one, both domestically and dollar denominated
Speaker 1: off to our bonds as well. But most importantly, China's
Speaker 1: corporate bond market has had a number of defaults in
Speaker 1: recent years, and that's a really big change because historically,
Speaker 1: you know, it was kind of uncertain that the authorities
Speaker 1: in China would allow companies to default. So you can imagine, Joe,
Speaker 1: that makes for an interesting bond market, given that bonds
Speaker 1: are of course supposed to reflect investors perception of default risk. Yeah.
Speaker 1: I remember, like, I guess what was at or the
Speaker 1: first ever Chinese bond default, And I remember thinking like,
Speaker 1: how is this possible? Like how could you have the
Speaker 1: first ever bond default. And I almost like thought I
Speaker 1: was misreading the article, is this idea that there had
Speaker 1: never been a defaulted bond before? But obviously, you know,
Speaker 1: we sort of take for granted the maturity of the
Speaker 1: US bond market, the US corporate bond market, and then
Speaker 1: defaults even in good times, you know, they happened from
Speaker 1: time to time with low rated companies. We sorry take
Speaker 1: for granted that not all markets are as a mature
Speaker 1: and sort of market regulated the way the US one is. Yeah, totally.
Speaker 1: And I mean I remember in two thousand and fifteen,
Speaker 1: analysts over at Bank of America Marylanch they published a
Speaker 1: note that was basically a history of Chinese corporate bond defaults,
Speaker 1: and there were like two things on there. It was.
Speaker 1: It was a pretty short note, as you might imagine,
Speaker 1: but it raises all these interesting questions about how do
Speaker 1: you actually develop a corporate bond market almost from scratch,
Speaker 1: and what sort of distortions or unique characteristics are introduced
Speaker 1: when you have a big question mark over whether or
Speaker 1: not defaults will be allowed. And I should just say
Speaker 1: one of the defining features of China's sort of business
Speaker 1: system as a whole is the division between private companies
Speaker 1: and state owned enterprises. So s O es uh, these
Speaker 1: big state run conglomerates that are often thought to be
Speaker 1: government backed or even government guaranteed. Right, Well, I'm interested
Speaker 1: in learning more about this topic alright. So we actually
Speaker 1: have the perfect guest to talk about all of this.
Speaker 1: It's someone who's done a lot of academic work on
Speaker 1: exactly this topic, as well as a lot of other stuff.
Speaker 1: It's Juin Pan. She is a professor at the Shanghai
Speaker 1: Advanced Institute of Finance at Shanghai Jiaotong University. So, June,
Speaker 1: thank you so much for coming on. Well, thank you
Speaker 1: so much for the invitation. It's exciting to hear what
Speaker 1: what do you and Joe just talked about it. It's
Speaker 1: really an interesting topic for me at the moment. Right. So,
Speaker 1: you actually just published a paper where you were looking
Speaker 1: at this exact topic, and specifically you were looking at
Speaker 1: whether or not spreads or risk premiums on China's corporate
Speaker 1: bonds actually reflect the health the financial health of its companies.
Speaker 1: But before we dive into that, um, I wanted to
Speaker 1: sort of ask you a broader question about how China's
Speaker 1: financial mark as are currently structured, So corporate bonds are
Speaker 1: supposed to be market based versus the sort of traditional
Speaker 1: bank based system of lending in China. And what I
Speaker 1: mean by market based is investors are setting or influencing
Speaker 1: funding costs by demanding a certain level of compensation for
Speaker 1: perceived risk. So how big of a leap was it
Speaker 1: or is it for China to move from that bank
Speaker 1: based system of lending to something that incorporates more market
Speaker 1: based types of lending. I would say it's a it's
Speaker 1: a big leap for people like myself who works in
Speaker 1: a in a financial research area, in a financial market.
Speaker 1: This is a very encouraging development to see that China's
Speaker 1: credit market overall, the credit market to be improving. Actually,
Speaker 1: the speed of the market development was pretty impressive over
Speaker 1: the past ten years. It grew into a roughly a
Speaker 1: street trailing US dollar market, So it has been a
Speaker 1: pretty impressive development just to the credit market alone. So
Speaker 1: sorry break it down. What is the split between how
Speaker 1: much private credit is funded via something we'd recognize as
Speaker 1: the bond market versus traditional bank lending. So if you
Speaker 1: think about the ratio for non financial firms in China,
Speaker 1: so we have a ratio of for market based debt,
Speaker 1: so including copper bounds and also other type of basically
Speaker 1: market traded versus bank loans. In two thousand eight it
Speaker 1: was about four point six percent, so only a tiny
Speaker 1: fraction as a racial too to the bank loads. You know,
Speaker 1: China's financial system is still a bank dominated uh system,
Speaker 1: not not like in the US. So that number grew
Speaker 1: from four point six in two thousand and eight a
Speaker 1: little bit under to be more precise, in two thousand eighteen,
Speaker 1: and much of that improvement is driven by the corporate
Speaker 1: the credit market. So walk us through your most recent paper.
Speaker 1: So you're you're taking a deep dive into Chinese corporate
Speaker 1: bonds and you're trying to ascertain whether or not the
Speaker 1: actual spreads, the risk premiums reflect something fundamental about the
Speaker 1: financial health of Chinese companies, as they sort of are
Speaker 1: meant to do in more developed markets. So you know,
Speaker 1: if a company is perceived to be at a higher
Speaker 1: risk of defaults, it'll have a higher spread because investors
Speaker 1: want to be compensated for that risk. Why did you
Speaker 1: decide to look into this particular topic in the US
Speaker 1: pocket this this question has been well researched, So you
Speaker 1: look at companies of different let's the different fundamental risk
Speaker 1: in terms of the faults. In academic we have standard
Speaker 1: models named after the professional button as we called the
Speaker 1: murder models. So in a mortor model, we take the
Speaker 1: firm's baton sheeting information including its leverage, and also we
Speaker 1: take the firms if the firm is traded with public
Speaker 1: playlisted equity, we take the equity market information and one
Speaker 1: of the key information will be the equity volatility. So
Speaker 1: the murder model will take those fundamental plus equity market
Speaker 1: information as input and give you an assessment of what's
Speaker 1: the probability of the fault for the bond issued by
Speaker 1: this company. And you can get a sense that there
Speaker 1: will be a connection between model predicted the faults and
Speaker 1: the market observed credit spreads. So in the US, if
Speaker 1: you take an approach of that, you will see that
Speaker 1: about of the variation in credit spread can be explained
Speaker 1: by fundamental So we take this as a starting point
Speaker 1: and we want to see whether in China we see
Speaker 1: a smiller direction in terms of fundamental house of the
Speaker 1: firm and the credit market pricing of the issuer. And
Speaker 1: and this is our studying point before we get to
Speaker 1: how well, the model works with the Chinese. Uh, with
Speaker 1: the Chinese bond market. I'm curious in the US, maybe
Speaker 1: just talk a little bit about you know, the US
Speaker 1: is probably close to the sort of ideal free market
Speaker 1: or free bond market. Is the Merten model robust enough
Speaker 1: such that one can use it to identify miss pricings
Speaker 1: or identify arbitrage opportunities between the price of a bond
Speaker 1: and the price of an equity. Because you said so,
Speaker 1: I'm sort of curious whether it's something that's mostly useful
Speaker 1: from just a pure theoretical perspective, or whether it can
Speaker 1: sort of form the basis for at least initially attempting
Speaker 1: to identify overvalued or undervalued bonds. Well, this is a
Speaker 1: good question. I mean, our financial models are always approxi
Speaker 1: mentions of the much much richer reality. But this model
Speaker 1: actually has been used by practitioners. There is uh you
Speaker 1: probably have heard of. It's called km V. Yeah, so
Speaker 1: km V was a it was a company that they
Speaker 1: exactly the mode model and see the model with the
Speaker 1: real data and the outcome is the problem. The km
Speaker 1: these distance to default measure, which is similar to the
Speaker 1: probability of default measure. I think for those listening who
Speaker 1: have terminals at home, we have a very good function
Speaker 1: on the terminal where you can and see your company's KMB. Yeah,
Speaker 1: I thought I had to uplug the terminal here, but
Speaker 1: you can. Actually it has the Merton model and you
Speaker 1: can change some of the assumptions and so it's very fun.
Speaker 1: You can sort of measure uh, you know, the gaps
Speaker 1: between the price of the CDs and distance to default.
Speaker 1: You can play around with that. It's very fun. And
Speaker 1: I didn't mean to interrupt your apologize for that. I
Speaker 1: would say this model it's not perfect. It's even the
Speaker 1: Black Show's option pricing for the lives a lot of
Speaker 1: you know, limitations, but it's a good starting point, a
Speaker 1: good reference point was to start with, and it's encouraging it.
Speaker 1: There is a link between the fundamental of the firm
Speaker 1: and how it's a bonus priced. And as you move
Speaker 1: on from the US market to the to the Chinese market,
Speaker 1: you know will be surprised or maybe not surprised to
Speaker 1: see that this meant actually should not be taken for granted,
Speaker 1: as we see in a in a data so imperfections
Speaker 1: in the Merton model aside, What did your research actually
Speaker 1: show for the Chinese credit market. Did spreads on China's
Speaker 1: corporate bonds actually show some sort of link to the
Speaker 1: fundamental health of companies or issuers? I mean, I guess
Speaker 1: another way of asking that question is is the market
Speaker 1: based system actually working in China? So this question has
Speaker 1: a know and then a yes. So the note is
Speaker 1: that the four two zousand fourteen, as as you and
Speaker 1: the Georges discussed, the four Tusan and fourteen bonds were
Speaker 1: not allowed to default, so they were zero deforet the
Speaker 1: prior two thousand and fourteen, so our data was from
Speaker 1: two thousand ten to two thousand fourteen, would call this
Speaker 1: the phase one period. During that period, there is no
Speaker 1: link fundamental and the credit spread. There is no link
Speaker 1: between those two. Why wasn't there this idea that they
Speaker 1: go there were like there was questions about whether default
Speaker 1: would ever be allowed to happen. What was the fear
Speaker 1: of there and what was sort of then driving the market?
Speaker 1: If there was this perception that defaults just weren't going
Speaker 1: to be a thing. Well, first, let me actually rephrase
Speaker 1: my previous statement. I should say conditioning on information in ratings,
Speaker 1: because China doesn't have rating agencies, so they do rate
Speaker 1: these different bonds, so conditioning on the ratings from fundamentals
Speaker 1: that have no uh, additional information, so there is no link.
Speaker 1: Is I do want to qualify my previous statement um
Speaker 1: in terms of why defaults was not allowed to happen.
Speaker 1: I guess this is not something it's difficult for me
Speaker 1: to speculate on the regulation regulators, right, But the observation
Speaker 1: from the market up participants is that these bonds never deflored.
Speaker 1: So there is the Chanese saying of bound market pricing
Speaker 1: face based do you down to this phase that bonds
Speaker 1: don't defer, So it doesn't really matter about risk compensation
Speaker 1: because the death's going to get bailed out anyway if
Speaker 1: it ever ran into trouble, and hence there's actually no
Speaker 1: differentiation shown in the risk premiums that is actually connected
Speaker 1: to the fundamental health of the company. But you said
Speaker 1: that was phase one, So what happened in phase two? Okay?
Speaker 1: So we start our phase two from from two thousand
Speaker 1: fourteen after the first default the front phase two to
Speaker 1: the first quarter of two thousand eighteen. So over that
Speaker 1: period you started to see a connection between the film
Speaker 1: fundamentals and equity marketing information and the what do you
Speaker 1: call the risk premium of the bonds all credit spreads
Speaker 1: of this spot the start to develop a link. The
Speaker 1: link is much weaker than what we've see in the
Speaker 1: US market, but this is from our aunt. It looks
Speaker 1: like a very promising beginning for the Chinese cap credit
Speaker 1: market in your recent paper, and Tracy mentioned this in
Speaker 1: the very beginning in the intro. Of course, the Chinese
Speaker 1: private sector, of the Chinese corporate market is still segmented
Speaker 1: massively between regular enterprises and state owned enterprises which are
Speaker 1: state controlled and state back to varying degrees. You also
Speaker 1: look at what the bond market says about the state
Speaker 1: owned s o E sector. What do you see are
Speaker 1: the differences in terms of how the bond market works
Speaker 1: for those s O s SO doing place one which
Speaker 1: is prior to the default. There is not too much
Speaker 1: differentiation between these two groups. Overall. We do see that
Speaker 1: a s A HE this government sponsored enterprise, the s
Speaker 1: as our states on the enterprise, you know, depending on
Speaker 1: how you call them, let's just call them as as SO.
Speaker 1: During phase one as HE does have a little bit
Speaker 1: of a premium, meaning that their credit spreads a narrower
Speaker 1: compared to the non ass aly counterparts. Was similar ratings
Speaker 1: during phase two. If you remember face towards the time
Speaker 1: from two southern fourteen to eighteen where we started to
Speaker 1: see the faults, but the defaults happened during that time
Speaker 1: was mostly too to the non listed firms. So if
Speaker 1: you focus on the listed firms, meaning that these firms
Speaker 1: usually are larger firms in the economy, then the difference
Speaker 1: between s and now as so as do a pretty
Speaker 1: mild mild in the sense that during phase three later
Speaker 1: on they become explosive, but during phase two there was
Speaker 1: two about twenty basis point in terms of difference in
Speaker 1: the credit spread. Let me repherence the the s AY
Speaker 1: issues enjoy about a twenty basis point narrower credit spread
Speaker 1: compared to that they are not necessarily counterpart. So the
Speaker 1: implicit guarantee seems uh to be very much alive for
Speaker 1: these state owned enterprises, and so they have these lower
Speaker 1: risk premiums, which means they can attract financing at a
Speaker 1: lower cost than private companies. I'm wondering do you have
Speaker 1: any thoughts or insights into how the Chinese authorities might
Speaker 1: be viewing that discrepancy or that segmentation in the market, Like,
Speaker 1: is there a desire to put private companies on a
Speaker 1: more even funding footing? So to speak with s O
Speaker 1: E S is that something that China wants? If it
Speaker 1: may I complete the whole picture before I talk about
Speaker 1: what UH policies implications. So prior to two thousand eighteen,
Speaker 1: So so so far we have two phases. One is
Speaker 1: pretty fault, one is posted fought. But up to two
Speaker 1: thousand and eighteen, if you look at the data, the
Speaker 1: difference between SZE and ANE is mild. It's about twenty
Speaker 1: basis point of a premium for the s E. But
Speaker 1: going into two thousand eighteen, this is when the credit
Speaker 1: market went crazy. This is so there are different regulations.
Speaker 1: Even prior to to thousand eighteen. There was a de
Speaker 1: leveraging campaign that started in two thousand and seventeen. So
Speaker 1: gradually the credit market is was affected by by the regulations.
Speaker 1: Especially in two thousand and eighteen, there was a what
Speaker 1: they called the st management New regulations are as a
Speaker 1: management which kind of cut the funding or the from
Speaker 1: the st manager site cut their holdings of the credits bounds.
Speaker 1: UH put it another way and makes them more discriminating
Speaker 1: against the USA. That makes them more aware of the
Speaker 1: credit rest even more so than before. So this is
Speaker 1: the time when the segmentation becomes very severe. So the
Speaker 1: Twente basis point premium enjoyed by the stories exploded to
Speaker 1: about hundred basis points. Prior, the segmentation between these two
Speaker 1: markets were was not so severe. Then post two thousand
Speaker 1: and eighteen it became a really big deal. And along
Speaker 1: the same time do you see starting to see a
Speaker 1: lot more efforts for the bias or eu frons. So
Speaker 1: it sounds like just listening to you so far as
Speaker 1: you identify these three phases. So there was the pre
Speaker 1: default phase going up to everyone enjoyed pretty tight spreads.
Speaker 1: The bond market didn't tell you very much. Post fourteen
Speaker 1: you start to get slightly more wider spreads for the
Speaker 1: private non s O companies and more information from the
Speaker 1: UM bond market period. They the prices start being more informative.
Speaker 1: Post eighteen, the spreads get even wider. And in this
Speaker 1: phase this is due to asset managers being forced to
Speaker 1: be more cognizant about credit risk. It sounds like a
Speaker 1: sort of just an ongoing maturation process. There was a story,
Speaker 1: and Tracy alerted it to me this morning that actually
Speaker 1: there is there is an s OE now that it's
Speaker 1: very close, if not near in default or some sort
Speaker 1: of bond holders are going to have to take a haircut.
Speaker 1: Are we on the verge of a new stage four
Speaker 1: or phase four whereby the bond market will start to
Speaker 1: be more meaningful for also the s O sector, the
Speaker 1: private sees you see them, you actually see private listed.
Speaker 1: When I say private, I mean s O E issuers
Speaker 1: who do not have a publicly listed So for this group,
Speaker 1: we we actually have sent the faults amount this group.
Speaker 1: I want to go back to uh my, my earlier question,
Speaker 1: which was about whether or not it's desirable for the
Speaker 1: private companies to be on a similar funding um playing
Speaker 1: field as the s O s because of course, in
Speaker 1: order for that to happen, I guess you you do
Speaker 1: need to introduce some sort of default risk into the
Speaker 1: state owned enterprise sector or you have to eliminate it
Speaker 1: in the private market, which doesn't seem to be um
Speaker 1: what China wants at the moment. So is leveling the
Speaker 1: playing field between those two sectors when it comes to financing,
Speaker 1: when it comes to moral hazard, in the bond market.
Speaker 1: Is that something that's desirable for China. It's it's something desirable,
Speaker 1: But I just don't see how that would work in
Speaker 1: this uh corporate bond market. If you put them together,
Speaker 1: the ally has explicit or implicit government guarantee, while the
Speaker 1: Nassois have duly compuri Its investors are not discriminating against
Speaker 1: the Nassois. But studying at phase three, when you see
Speaker 1: massive defaults, not massive, but you see increasing amount of
Speaker 1: defaults happening in the market, the investors are nervous. When
Speaker 1: they are nervous, they shown away from the nias we issuers.
Speaker 1: Most of them take only bob and they just block
Speaker 1: up block that nice wee bots out. But they don't
Speaker 1: even look at nicely bound. That's the that's the problem,
Speaker 1: and I just don't At the policy level, it would
Speaker 1: be difficult to find a way to level the plane
Speaker 1: field for for these two groups, especially during crisis. Speaking
Speaker 1: at the policy level, I want to sort of ask
Speaker 1: a big picture question. So you mentioned that for for
Speaker 1: most of history up until very recently, the Chinese economy,
Speaker 1: most credit was bank credit, and it wasn't There wasn't
Speaker 1: even really much of a bond market. Uh, if you
Speaker 1: go back a little bit over a decade, how much
Speaker 1: of that bank led market is especially by design, whereby
Speaker 1: authorities who have sort of priorities in terms of investment
Speaker 1: can more easily u direct bank lending. And I'm curious
Speaker 1: if the ongoing growth of the credit market as a
Speaker 1: meat is a vehicle for financing changes at all the
Speaker 1: ability of decision makers of political leaders to direct money
Speaker 1: towards key favored industries, or whether that hasn't really changed much,
Speaker 1: whether they can still do it except just through a
Speaker 1: different avenue. I think having the market based bound uh
Speaker 1: poper bound market is very important to direct especially direct
Speaker 1: funding financing sources for the disse because prior to that
Speaker 1: bank funding was mostly directed at banks leading to firms.
Speaker 1: So for the NIA slow he's this credit market is
Speaker 1: actually very important. And up to two thousand eighteen they enjoyed,
Speaker 1: uh increased the issuance, they enjoyed the financing. But posted
Speaker 1: to eighteen, as the market was going through a very
Speaker 1: stressful period, they have something process actually dried I shouldn't
Speaker 1: say dried up, but they were increasing steadily. But new
Speaker 1: issuances by nyas yes, as a fraction of the overall
Speaker 1: market decreased the first quarter of two thousand eighteen. So
Speaker 1: we've talked a lot about I guess the sort of
Speaker 1: uniqueness of China's corporate bond market at at this current
Speaker 1: moment in time, and in many ways, it's still developing
Speaker 1: and maybe it'll get to a similar level to where
Speaker 1: the US is at the moment, but it's not quite
Speaker 1: there yet. What do you think this means for international investors?
Speaker 1: Because of course, China's corporate bonds are becoming more integrated
Speaker 1: into international investors portfolios via inclusion in benchmark indusicries, including
Speaker 1: some that are owned by Bloomberg LP. I should just mention,
Speaker 1: So what does all of this mean for international investors?
Speaker 1: How should they be viewing China's corporate ball market At
Speaker 1: the moment, China's fixed incour market overall is being opening up.
Speaker 1: You see a lot of relaxing of restrictions that very
Speaker 1: much welcome the international investors. Copper body in particular, I
Speaker 1: think most of the foreign investment right now is focused
Speaker 1: on the on the yield space, not the spread space,
Speaker 1: meaning that it's focusing most of the government bomb. But
Speaker 1: the you always say, the default free bonds, not the
Speaker 1: credit bouk. Overall, I think this market would would benefit
Speaker 1: from more international investors, or conversely, maybe there will be
Speaker 1: opportunities for international investors to pick the right bond to
Speaker 1: put a different play. I think if for international investors
Speaker 1: these companies that issue couple of bonds, these are especially
Speaker 1: for the sample we started, these are large companies with
Speaker 1: listed equities, but this could be another way for them
Speaker 1: to be exposed to the real China in a sense
Speaker 1: that these are companies doing business in China. John, that
Speaker 1: was a fascinating conversation and a really good time to
Speaker 1: have that conversation given what we've just seen in China's
Speaker 1: credit markets. So thank you so much for coming on.
Speaker 1: We really appreciate it. Thank you. That was great, sure,
Speaker 1: thank you. So. I found that conversation so so interesting.
Speaker 1: And one of the things I always like about, you know,
Speaker 1: markets and financial regulation and the development of capital markets
Speaker 1: is the idea that there can be all these unintended consequences.
Speaker 1: So I'm really fascinated by the idea that by introducing
Speaker 1: the possibility of default into the private market, China has
Speaker 1: basically inadvertently created this big funding cost segmentation, but also
Speaker 1: kind of created a potential financial stress point, like the
Speaker 1: notion that when things get really bad, everyone flees the
Speaker 1: private companies and heads into the s OE sector. I
Speaker 1: find that really interesting, right, I mean, I guess the
Speaker 1: thing is, it's at some level there's going to be
Speaker 1: it's hard to imagine the existence of s O s
Speaker 1: and they're not being a major, uh slanted playing field
Speaker 1: or tilted playing field on some level, like whether there's
Speaker 1: a on market or a stock market or whatever. The
Speaker 1: fact that a bunch of companies are a state backed
Speaker 1: that a bunch of aren't. You had imagined that that's
Speaker 1: going to create an advantage for the state backed ones.
Speaker 1: But to see how that sort of manifests itself, and
Speaker 1: even like sort of wrap one's head around the idea
Speaker 1: of market based pricing of state owned enterprises, it's just
Speaker 1: extremely strange. It'll be interesting to see how that developed,
Speaker 1: because if it stayed backed, why would they let it
Speaker 1: default at all? And it's very it's kind of hard
Speaker 1: to wrap one's head around from a sort of US
Speaker 1: centric perspective, right, So you definitely have questions around this
Speaker 1: and that company that you mentioned, the state owned enterprise,
Speaker 1: it's called ta WU and UH it's potentially sort of
Speaker 1: defaulting on its dollar bonds. UM. This is a big
Speaker 1: s o E that's based in Tianjin, which is in
Speaker 1: the Northern province and has been um experiencing a few
Speaker 1: economic problems. So this is going to be a really
Speaker 1: interesting one to watch, like whether not this becomes a
Speaker 1: watershed moment for s o E s. And again, the
Speaker 1: policy implications are absolutely fascinating. Is this something that China
Speaker 1: is actively trying to encourage in order to introduce more
Speaker 1: differentiation between its s o E s Or is this
Speaker 1: something that it doesn't actually want to happen, but it's
Speaker 1: starting to have to countenance the idea of haircuts or
Speaker 1: defaults because of its massive debtload and fiscal position. That's
Speaker 1: sort of the question that we are in. Yeah, and
Speaker 1: just more generally, I really like the way she broke
Speaker 1: it down through the different phases because again, I mean,
Speaker 1: this is obviously just such an incredibly immature market. It's
Speaker 1: basically existed for a little over a decade, so I'm
Speaker 1: sure there will be more phases to come, but so far,
Speaker 1: what we've seen looks like what you would expect, uh
Speaker 1: from a sort of maturing, growing industry or part of
Speaker 1: the capital markets and in the and if you think
Speaker 1: about how young it is, it kind of makes sense
Speaker 1: that they never had defaults in the beginning because you
Speaker 1: sort of, you know, you want to build up an
Speaker 1: investor base, you want to have people have confidence in
Speaker 1: the market overall, so you sort of get the impression
Speaker 1: the sort of liberalization of the market. It's slow, but
Speaker 1: it's also kind of logical, right. I mean, there's definitely
Speaker 1: teething problems that you would see in any new capital market,
Speaker 1: but I do think the picture is complicated by the
Speaker 1: structure of the Chinese economy and the existence of the
Speaker 1: s O s and it's sort of, um, it's sort
Speaker 1: of capital markets with Chinese characteristics, right, well put, thank
Speaker 1: you all right, Well, this has been another episode of
Speaker 1: the Odd Thoughts podcast. You can follow me on Twitter
Speaker 1: at Tracy Alloway. And I'd like to just give a
Speaker 1: shout out to uh Steve Hoe who's on Twitter and
Speaker 1: he actually suggested John for an All Thoughts guest. So
Speaker 1: you can follow Steve at Steve ho that's h o
Speaker 1: U and then F Steve co F and I'm Joe
Speaker 1: wisn't thal. You can follow me on Twitter at the Stalwart,
Speaker 1: and be sure to follow our producer on Twitter, Laura Carlson.
Speaker 1: She's at Laura M Carlson. And follow all of our
Speaker 1: podcasts at Bloomberg at the handle at podcasts. Thanks for
Speaker 1: listening