Last Friday (Feb. 22), Qinghai Provincial Investment Group (QPIG) defaulted on 11 million dollars in interest payments on a 300-million-dollar bond. The company is majority-owned by the government of the Qinghai province in western China. The notion of a state-owned enterprise being allowed to default on its foreign bonds is very exceptional for China and reflects the country’s changing conditions.
For the time being, it has been widely held that the Chinese government would intervene to bail out struggling state-owned firms despite the fact that several state companies had been allowed to default on domestic bond issues in recent years. QPIG, which ran into insolvency problems already last year, was also believed to be bailed-out by the government.