Finance
China may have to brace for a new wave of bond defaults, S&P says
Residential buildings under construction at the Phoenix Palace project, developed by Country Garden Holdings Co., in Heyuan, Guangdong province, China in September 2023.
Bloomberg | Bloomberg | Getty Images
BEIJING — China’s state-directed economy may be creating the conditions for a new wave of bond defaults that could come as soon as next year, according to an S&P Global Ratings report released Tuesday.
It would be the third round of corporate defaults in about a decade, the ratings agency pointed out.
It comes against a backdrop of extremely few defaults in China amid concerns about overall growth in the world’s second-largest economy.
“The real thing to watch for policymakers is whether the current directives are creating distorted incentives in the economy,” Charles Chang, greater China country lead at S&P Global Ratings, said in a phone interview Wednesday.
China’s corporate bond default rate fell to 0.2% in 2023, the lowest in at least 8 years and far below the global rate of about 2.6%, S&P data showed.
“To a certain extent this is not a good sign, because we see this divergence as something that’s not the result of the functioning of markets,” Chang said. “We’ve seen directives or guidance from the government in the past year to discourage defaults in the bond market.”
“The question is: When the guidance to avoid the defaults in the bond market [ends], what happens to the bond market?” he said, noting that’s something to watch out for next year.
Chinese authorities have in recent years emphasized the need to prevent financial risks.
But heavy-handed approaches to tackling problems, especially in the real estate sector, can have unintended consequences.
The property market slumped after Beijing’s crackdown on developers’ high reliance on debt in the last three years. The once-massive sector has dragged down the economy, while the property sector shows few signs of turning around.
Real estate led the latest wave of defaults between 2020 and 2024, according to S&P. Prior to that, their analysis showed that industrials and commodity firms led defaults in 2015 to 2019.
“The bigger issue for the government is whether the real estate market can stabilize and property prices can stabilize,” Chang said. “That can potentially ease off some of the negative wealth effects that we’ve been seeing since the middle of last year.”
Much of household wealth in China is in real estate, rather than other financial assets such as stocks.
Economic growth concerns
Bond defaults dropped in most sectors last year except for tech services, consumer and retail, S&P found.
“That flags potential vulnerabilities to the slowing growth we’re seeing right now,” Chang said.
China’s economy grew by 5.2% last year, and Beijing has set a target of around 5% in GDP growth for 2024. Analysts’ forecasts are generally near or below that pace, with expectations for further slowdown in the coming years from the double-digit growth of past decades.
Large levels of public, private and hidden debt in China have long raised concerns about the potential for systemic financial risks.
China’s debt problems, however, are not as pressing as the need for Beijing to address real estate issues in a broader “comprehensive strategy,” Vitor Gaspar, director of the fiscal affairs department at the International Monetary Fund, said at a press briefing last week.
He said other aspects of the strategy are China’s emphasis on innovation and productivity growth, as well as the need to strengthen social safety nets so that households will be more willing to spend.
It remains to be seen whether other sectors can offset the property sector’s drag on the economy, and bolster growth overall.
UBS on Tuesday upgraded MSCI China stocks to overweight due to better corporate earnings performance which are not affected by property market trends.
“The largest stocks in the China index have been generally fine on earnings/fundamentals. So China underperformance is purely due to valuation collapse,” Sunil Tirumalai, chief GEM equity strategist at UBS, said in a note. “What makes us more positive now on earnings are the early signs of pick up in consumption.”
The bank also upgraded its outlook on Hong Kong stocks.
On why UBS’s changed its view on China valuations, Tirumalai pointed to a “growing trend of China companies giving positive surprise on dividends/buybacks.“
“This higher visibility of shareholder returns can be useful if global markets get more worried on geopolitics, and in higher-for-longer scenarios. We would keep an eye on the next leg of market reforms,” he added.
Seksan Mongkhonkhamsao | Moment | Getty Images
French accounting software firm Pennylane has doubled its valuation to 2 billion euros ($2.16 billion) in a new 75 million euro funding round.
Pennylane told CNBC that it raised the fresh funds from a host of venture funds, with Sequoia Capital leading the round and Alphabet’s CapitalG, Meritech and DST Global also participating.
Founded in 2020, Pennylane sells what it calls an “all-in-one” accounting platform that’s used by accountants and other financial professionals.
The platform is primarily targeted toward small to medium-sized firms, offering tools for functions spanning expensing, invoicing, cash flow management and financial forecasting.
“We came in tailoring a product that looks a bit like [Intuit’s] QuickBooks or Xero but adapting it to the needs of continental accountants, starting with France,” Pennylane’s CEO and co-founder Arthur Waller told CNBC.
Pennylane currently serves around 4,500 accounting firms and more than 350,000 small and medium-sized enterprises. The startup was previously valued at 1 billion euros in a 2024 investment round.
European expansion
For now, Pennylane only operates in France. However, after the new fundraise, the startup now plans to expand its services across Europe — starting with Germany in the summer.
“It’s going to be a lot of work. It took us approximately five years to have a product mature in France,” Waller said, adding that he hopes to reach product maturity in Germany in a shorter time period of two years.
Pennylane plans to end the year on about 100 million euros of annual recurring revenue — a measure of annual revenue generated from subscriptions that renew each year.
“We are going to get breakeven by end of the year,” Waller said, adding that Pennylane runs on lower customer acquisition costs than other fintechs. “75% of our costs are R&D [research and development],” he added.
Pennylane also plans to boost hiring after the new funding round. It is looking to grow to 800 employees by the end of 2025, up from 550 currently.
‘Co-pilot’ for accountants
Like many other fintechs, Pennylane is embracing artificial intelligence. Waller said the startup is using the technology to help clients automate bookkeeping and free up time for other things like advisory services.
“Because we have a modern tech stack, we’re able to embed all kinds of AI, but also GenAI, into the product,” Waller told CNBC. “We’re really trying to build a ‘co-pilot’ for the accountant.”
He added that new electronic invoicing regulations coming into force across Europe are pushing more and more firms to consider new digital products to serve their accounting needs.
“Every business in France within a year from now will have to chose a product operator to issue and receive invoices,” Waller said, calling e-invoicing a “huge market.”
Luciana Lixandru, a partner at Sequoia who sits on the board of Pennylane, said the reforms represent a “massive market opportunity” as the accounting industry is still catching up in terms of digitization.
“The reality is the market is very fragmented,” Lixandru told CNBC via email. “In each country there are one or two decades-old incumbents, and few options that serve both SMBs and their accountants.”
Jakub Porzycki | Nurphoto | Getty Images
Bitcoin fell below the $79,000 level as investors braced for more financial market volatility after U.S. equites suffered their worst decline since 2020 on the rollout of President Donald Trump’s restrictive global tariffs.
The price of bitcoin was last lower by 4% at $78,835.07, according to Coin Metrics, after trading above the $80,000 for most of this year — barring a couple brief blips below it amid recent volatility. It’s off its January all-time high by about 34%.
Although the flagship cryptocurrency usually trades like a big tech stock and is often viewed by traders as a leading indicator of market sentiment, it bucked the broader market meltdown last week – holding in the $80,000 to $90,000 range and rising to end the week as stocks tumbled and even gold fell.
Other cryptocurrencies suffered bigger losses overnight. Ether and the token tied to Solana tumbled 9% each.
Bitcoin’s down move triggered a wave of long liquidations, as traders betting on an increase in its price were forced to sell their assets to cover their losses. In the past 24 hours, bitcoin has seen more than $181 million in long liquidations, according to CoinGlass. Ether saw $188 million in long liquidations in the same period.
Bitcoin has traded mostly above $80,000 in 2025
Rattled investors dumped their holdings of cryptocurrencies, which trade 24 hours, over the weekend as they anticipated further carnage, after Trump’s retaliatory tariffs raised global recession fears and caused investors to sell all risk.
The duties on all imports, in addition to custom tariffs for major trading partners, have sparked worries of a global trade war that could lead the U.S. into a recession. Growing concerns about the far-reaching impact of the tariffs sent markets reeling worldwide.
In the two sessions following the tariff announcement, global stocks wiped out $7.46 trillion in market value based on the market cap of the S&P Global Broad Market Index, according to S&P Dow Jones Indices.
That figure includes $5.87 trillion lost in the U.S. stock market over those two sessions and another $1.59 trillion loss in market value in other major global markets.
Bitcoin is down 15% in 2025 and, absent a crypto-specific catalyst, is expected to continue moving in tandem with equities as global recession fears overshadow any regulatory tailwinds crypto was expected to benefit from this year.
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