CHINA’S FIRST ONSHORE default since the corporate bond market was opened up in 1997 is at hand. Solar-panel maker Shanghai Chaori Solar Energy Science & Technology has technically defaulted on its 1 billion yuan ($163 million) five-year bond issued in 2012 after warning last month that it would be unable to meet in full a 89.8 million yuan ($14.7 million) interest payment due March 7. The company says it was only able to pay 4 million yuan on the due date.
By not coming to the issuer’s aid, and as they are doing with defaulting trusts, authorities are warning that the implicit guarantee that investors have assumed government gives to every issuance no longer holds true. Big money is at stake. Chinese companies had 8.7 trillion yuan of bonds outstanding as of end-January (up from 800 billion yuan at end-2007). That makes Chaori’s default a drop in the bucket, one reason that central government is letting it default. The ripple will be salutary rather than financial.
Investors have had time to prepare. Chaori’s bonds were suspended from trading last July and its equities, listed on the Shenzhen exchange, last month. Authorities, though, will be hoping now the day of default has come it does not turn into “China’s Bear Stearns moment” as analysts at Bank of America have warned, referring to the way investors reassessed credit risks when the U.S. investment bank had to be bailed out by Washington in 2008 triggering a chain of events that led to the crash of Lehman Bros. and the global financial crisis.
Another reason to let Chaori go is the dire state of the solar panel industry where the government is promoting the consolidation of weaker players to remove excess production capacity. (Another solar panel maker, LDK Solar, has previously been allowed to default on its offshore bonds and to go to the brink of bankruptcy, a precipice that Wuxi SunTech went over.) Nonetheless, four companies have scrapped bond sales that would have raised an aggregate 1.27 billion yuan while yields on Chinese junk-bonds have jumped in the wake of Chaori’s default.
Getting lenders and investors to better price risk in domestic credit markets and corporate managers to better understand what is a realistic return on their investments in plant and equipment is exactly what President Xi Jinping and Premier Li Keqiang meant when they said market forces would be allowed to play a greater role in the Chinese economy. This Bystander expects more low-key corporate bond defaults to come in other industries suffering from excess capacity such as steel, metals and shipbuilding.
Solar panels in Qingdao, Shandong Province. Photo credit: Xinhua
SIX MONTHS AGO, China’s policymakers set a new goal of more than quadrupling the country’s solar power generating capacity by 2015. The objective came against a background of an industry wracked by overcapacity and falling prices that has pushed companies like LDK Solar and JA Solar to the edge of bankruptcy, and Sun Tech over it. It was intended to restore the ailing industry’s health — more solar power plants will require more photovoltaic panels — and draw the sting from a series of trade disputes. It also fits with an overall goal of diminishing the country’s dependency on polluting fossil fuels.
Now the industry ministry has announced measures to help reach that goal, largely by driving industry consolidation and promoting standardization. It is also pushing the local generation of solar power in small-scale installations not connected to the power grid. That should promote technical innovation, as will R&D into batteries to store solar power. The package of measures is intended to avoid creating the trade frictions with the U.S. and the E.U. that China’s earlier support for its solar exporters caused. It will potentially provide more domestic work for China’s solar companies which together provide more than half the world’s solar panels — and have been accused of dumping them on international markets at below cost. Both the U.S. and the E.U. have imposed anti-dumping penalties.
China’s total installed solar power generating capacity increased by 8 gigawatts (GW) in 2013, of which 6 GW were at power plants and 2 GW were at decentralized installations, according to the China Photovoltaic Industry Alliance. If that initial estimate is confirmed it would mean capacity doubled last year. The raising last July of the country’s goal for 2015 to 35 GW from 21 GW requires another doubling of generating capacity over this year and next.
CHINA HAS LONG been steadily losing farmland to urbanization, soil erosion and environmental degradation. Now authorities say 3.33 million hectares of the arable land the country still has are too polluted to grow crops. By way of comparison, that is an area almost equal to the size of Taiwan. Vice-minister for land and resource Wang Shiyuan says “tens of billions of yuan” is being thrown at pilot projects to rehabilitate contaminated land and water supplies tainted by the same source.
Officials are particularly concerned about toxic metals getting into the food chain. This Bystander has heard reports of rice being sold in Guangzhou that contains dangerous levels of cadmium. Once in the ground, such metals can persist for years, and government land surveys are still turning up traces of pesticides banned in the 1980s.
China is skirting the 120 million hectares of farmland considered to be the minimum needed to ensure the country’s food security. A newly released national land survey says the country’s arable land was down to 135.4 million hectares as of the end of 2012. The current five-year plan calls for more than 50 million hectares of new farmland to be created by 2020, so every little bit of reclaimed contaminated land helps.
WHAT IS EXPECTED to be China’s largest and the world’s second-largest carbon trading market has opened for business. First-day’s trading on the China Emissions Exchange in Guangzhou was roughly double the opening day’s volume on its predecessors in Beijing, Shanghai and Shenzhen.
Exchanges in Chongqing and Tianjin, and the province of Hubei are planned to follow in the next few months as Beijing clamps down on CO2 emissions from heavy industry. Beijing is planning to run the seven exchanges for three to five years as pilots for a national scheme.
Companies have to have a carbon permit for every tonne of carbon dioxide emitted. Most permits will be issued for free initially, but companies will have to pay for 3% of their expected emissions in the first year of the scheme, with that percentage gradually rising in the future. The Guangdong scheme covers the province’s big power generators, cement, iron and steel producers, a group of 242 companies that have been capped at 350 million tonnes of CO2 emissions. Textiles, pulp and paper and metals industries will be added later.
When all the carbon trading markets are up an running they will regulate 800 million tonnes of emissions, equivalent to Germany’s annual emissions. Beijing’s goal is to cut its greenhouse gas emissions per unit of GDP to 40-45% below 2005 levels by 2020, not just to limit the effects of climate change, but also as part of its drive to become more energy efficient and to deflect the negative criticism that comes with being the world’s biggest polluter.
The death toll from the heavy rains lashing southern China has reached 53 with several other people reported missing. At least 22 of the deaths have been in Guangdong, the worst-affected province, state media report. Some reports put the death toll there as high as 36. More than 650,000 in the province have been affected by the flooding and landslides. A further 200,000 have been affected in Guangxi. Last week, 19 people died there and in Hunan and Guizhou as a result of heavy rains and floods that caused widespread property damage.
Being granted observer status at the Arctic Council is a significant step forward for China’s trade and energy ambitions on the roof of the world. A northern route through the Arctic would lessen the costs and dangers of shipping Chinese goods to Europe via the traditional and lengthier sea routes through the Moluccan Straits, the Indian Ocean and the Horn of Africa.
Global warming makes alternative northern routes feasible, at least in the summer months, which offer the promise of an ice-free northwestern passage to Europe. It also makes drilling for oil and gas a practical possibility. The region may hold up to a quarter of the world’s untapped fossil energy reserves.
Beijing has been beefing up its Arctic research and is building a new high-tech polar expedition ice-breaker due to be in service next year. China already has the world’s largest non-nuclear icebreaker, the Ukraine-built Xue Long (Snow Dragon) which last year made the first passage from China to Iceland through the far north. Chinese mining companies are starting to invest in Greenland’s mineral resources and last month Beijing signed a free trade deal with Iceland, with which it is also cooperating on geothermal energy.
The full members of the Arctic Council — the Nordic countries, Canada, the U.S. and Russia — all have an Arctic coasts, which China self-evidently does not. Observer status, which it now shares with Japan, India, South Korea, Singapore and Italy, gives China the right to listen in on meetings and propose and finance policies.
China’s regional push into Africa and the Indian Ocean has met some resistance. Beijing is likely to continue to move cautiously if determinedly in the Arctic, not least because Russia, with its long Arctic coastline, sees itself as the regional power and energy bridge between Asia and Europe. But as we noted before, few can doubt that China’s mariners, fishermen, scientists and petroleum engineers will be plying the increasingly less icy waters of the Arctic in ever greater number.
For those looking for a location map of the 7.0-magnitude earthquake that hit Lushan county of Ya’an city in Sichuan Province on the morning of April 20th, 2013, we offer this map from the United Nations’s Office for the Coordination of Humanitarian Affaris (OCHA).
Up to 29 aftershocks have been reported, with the biggest one at magnitude 5.3. The death toll had climbed to 192 by Monday evening, state media reported, with hopes fading for 23 people still missing. The rescue effort is now turning into a relief operation for the more than 2,000 injured and around 120,000 people who have been evacuated from the immediate area.
If pigs could fly. Well, they do float. At least when dead. More than 2,000 bloated pig carcasses have been fished out of the Huangpu River at Songjiang on the outskirts of Shanghai. It is not unusual to see all sorts of pollutants in China’s rivers, including dead pigs, if not on this scale. It is not clear how the pigs got into the river, or who dumped them in it, but there are plenty of pig farms upstream. Authorities say there is no cause for concern over the quality of drinking water taken from the river, but this unusual case seems set to become a touchstone for popular concerns about environmental pollution.
Update: Authorities say the number is now up to 2,800 dead pigs, that the animals came from Jiaxing City in Zhejiang, and that the pig virus, PVC (porcine circovirus, which is not known to infect or cause disease in humans), had been found in one water sample.
The two views above are taken from the same vantage point less than 90 days apart. They show Yinshan Island in Poyang Lake, China’s largest freshwater lake, which has been undergoing repeated cycles of shrinkage. At the time of the bottom photo was taken, late July, the lake covered an area of 3,990 square kilometers. The upper photo was taken this week. The lake’s surface area had shrunk to 1,060 square kilometers. There are more photos taken this week of Poyang Lake here.
That, though, is not as small as the lake got at the beginning of this year when it was down to 188 square kilometers. In its pomp, Poyang covers 4,500 square kilometers, an area six times the size of Singapore.
The lake is fed by five rivers in Jiangxi and empties into the Yangtze. Its water level now regularly falls so far that fishing is possible for barely three months of the year. The lake used to provide a livelihood for a fleet of 10,00 fishing boats, as well as supporting hundreds of thousands of migratory birds including the Siberian crane in winter, that, like the fishermen, depend on a lake full of fish to survive.
Poyang is also home to a rare finless porpoise, which is increasingly threatened with extinction. Its numbers in Lakes Poyang and Dongting were down to 600 in 2006 in a count that also covered the Yangtse. The World Wide Fund for Nature (WWF) is due to conduct its next survey in November and December. The results are awaited with some trepidation. The Yangtse’s other rare porpoise, the Baiji, has become extinct.
Poyang has been in decline for a decade, a casualty of industrialization, urbanization and agriculture. The WWF estimates that half China’s industrial waste and sewage ends up in the Yangtse. Some of that feeds into the lake. Only now are efforts being made to regenerate it before it is too late.
The global solar industry is going through tough times. Excess capacity has caused solar-panel prices to plummet. Chinese solar-panel manufacturers face double trouble because their exports are also under anti-dumping investigations in the EU and the U.S. So Beijing is giving the domestic industry a boost to look inwards.
A report in the China Securities Journal says the National Energy Administration has told all provinces to come up with pilot schemes for local electricity generation using solar power. Plans are due by October 15, implementation by 2015. Beijing, Shanghai and Tianjin have been told to be in the vanguard. Putting the banks’ money where the policymakers’ mouths are, the China Development Bank is to provide financial support through loans to the top dozen solar companies.