The irony is painful. Huarong, China’s largest state-owned bad debt manager, is on the brink of becoming a delinquent debtor itself. The government, which set up four such agencies in the 1990s, appears anxious about the weakest two. It is another bear signal for international investors in Chinese debt.

The first big shock was the execution for corruption of Lai Xiaomin, Huarong’s ex-chairman, in January. Now regulators are investigating an executive at another of the bad debt managers — China Great Wall — on suspicion of the same offence.

No other details have been disclosed on a case which might involve a previous employer. But investors will still scrutinise Great Wall for signs of stress. They will read across from Huarong’s perpetual bonds, which trade at 70 cents on the dollar. That group’s own investments include about $20bn worth of dollar-denominated bonds. Between them, the four bad debt managers have combined liabilities of about $700bn.

The quartet are no match for the country’s most indebted groups. Property company China Evergrande, for example, alone had liabilities of more than $300bn last year. Its largest creditors are local lenders such as Industrial and Commercial Bank of China.

Evergrande has also long been a favourite with foreign investors, thanks to its high yields — 9.5 per cent on a bond maturing in 2024. Bondholders have tended to assume that, given its large size, Evergrande has an implicit government guarantee. More than $20bn of its bonds are denominated in dollars. That has helped it grow its debt to ebitda ratio to an unmanageable 10.8 times.

Beijing has remained uncharacteristically hands-off throughout the bumpy ride suffered by Huarong creditors this year. The normal public reassurances have been missing. China’s top financial regulator may be distancing itself from bad debts. It has reportedly ordered big creditors to conduct a new round of stress tests to gauge their exposure to Evergrande.

Evergrande shares have dropped 40 per cent in the past year, reflecting its deteriorating balance sheet. Foreign investors now need to be on their toes. If the government is really cutting bad debt managers loose, they would struggle to absorb the non-performing exposures of groups such as Evergrande. Contagion across a swath of Chinese business is a real risk.

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