China’s regulatory actions, driven by Beijing’s financial, security and social objectives, have injected volatility into the credit market over the past year. Despite short-term impact on companies’ profitability, there might be a window for the impacted sectors to formulate a more sustainable growth strategy, and eventually to emerge stronger in the long run. For Asian credit investors, being mindful about the dynamic regulatory backdrop while adopting a prudent credit selection can help to navigate through the uncertainties and identify opportunities with superior risk-adjusted return potential. 

Social priorities tighten regulatory leash

Prices of some segments of the Chinese corporate dollar bond market have come under strong pressure after Beijing embarked on its campaign of regulatory overhaul. Investors could not help but wonder the direction of government regulatory actions and its ripple effect on the wider Asian credit market. We believe the Chinese government has been supportive of the internet and property sectors for the past two decades, both in terms of favorable regulations and the build-up of infrastructure, as developing these key sectors promoted economic prosperity. The focus has now shifted to achieving more equitable objectives like social stability. 

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