China allows first corporate bond default in step toward reforming financial markets

BEIJING, China – Chinese authorities have allowed the country’s first corporate bond default, inflicting losses on small investors in a painful step toward making its financial system more market-oriented.

A Shanghai manufacturer of solar panels paid only part of 90 million yuan ($15 million) in interest due Friday on bonds issued in 2012, according to two bondholders. They received as little as 3 per cent of what they were owed.

Until now, Beijing has bailed out troubled companies to preserve confidence in its credit markets. But the ruling Communist Party has pledged to make the economy more productive by allowing market forces a bigger role.

Earlier efforts to stave off defaults by other borrowers with loans or other aid prompted complaints authorities were wasting money. Critics said investors should share in losses.