Solar panel maker Shanghai Chaori Solar Energy Science & Technology has defaulted on interest payments owed on its bond, say media reports quoting the firm. It is the first Chinese firm ever to default on its onshore corporate bonds. On Tuesday, the firm warned it would be unable to make a 89.8 million yuan ($14.6m; £8.7m) interest payment on a one billion yuan bond issued in 2012.
The default is seen as a test case for the Chinese government.
Investors have assumed in the past that the Chinese government would bail out any Chinese corporation in danger of defaulting.
(1) SIGNALS (ONCE AGAIN) THAT AS EVEN CHINESE SUBSIDIES CAN'T MAKE IT PROFITABLE: THE ENTIRE GLOBAL, SOLAR/GREEN SECTOR MIGHT BEGIN TO CRASH, AND...
(2) BECAUSE IT SIGNALS THAT CHINA WILL ALLOW COMPANIES TO GO BANKRUPT.
THIS IS GOOD BECAUSE FOR FREE MARKET CAPITALISM TO WORK THERE NEEDS TO BE A MORAL HAZARD (RISK OF LOSS) - AFTER ALL, IT'S A PROFIT-AND-LOSS SYSTEM, AND NOT JUST A PROFIT SYSTEM.
BUT IT'S BAD BECAUSE CHINA HAS BUILT UP BILLIONS AND BILLIONS AND BILLIONS OF DOLLARS OF BAD LOANS MADE TO BANKS AND PEOPLE IN MANY MARKETS - (MANY CORRUPTLY CONNECTED TO "THE PARTY"/RULING CLASS) - WHO CANNOT PAY IT BACK - JUST LIKE THE HOUSING BUBBLE HERE.
AND IT WILL SOON BURST, JUST AS IT DID HERE.