As
economic conditions in the U.S. have stabilized and domestic yields remain low
there is an appeal for increasing Chinese corporate bond yields, this is due to
high risks related to questionably high levels of corporate debt in China, which
has led to increased competition between historically dominate western banks,
i.e. Wall Street, and the rising financing power of Chinese banks. This threat
to western banking dominance has created an increase in banking pressure on
western financial institutions to expand their underwriting of Chinese firms as
their Chinese counterparts are more willing to accept lower profit margins and maintain
a greater degree of secrecy. The article go further in-depth explaining that
this secrecy is done by what are called x-account orders, and that such orders
maintain a level of discretion between the issuer and the institution as to the
amount of bonds they will purchase. This lack of transparency has made it increasingly
difficult for western institutions to compete with what they don’t know, and
has created a risky and uncomfortable investing environment.
Nathaniel
Dust
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