China between state and market economy

Compared to other bond markets, China’s default rate is astonishingly low. This is largely caused by the government’s implicit promise to bail out SOEs that are in trouble, creating a typical “moral hazard” situation. Recent SOE defaults, however, show that China’s financial regulators are trying to move more strictly against this “moral hazard”. But their task is difficult: Other political goals, like employment and social stability, still often restrain financial regulators from allowing SOEs to fail.​

Last updated: 24. July 2025