China’s bond market is facing rising re-defaults, driven by continued stress in the housing market, where years of government loosening and stimulus have yet to bring relief, according to a report by S&P Global Ratings on Monday.

Since 2020, amid the crisis triggered by the default of China Evergrande Group – the world’s most indebted property developer – about 40 per cent of restructured onshore bonds have suffered re-defaults, the report said. The turmoil was later compounded by Country Garden’s default two years later and China Vanke’s two years after that.

Despite stimulus, corporate loans have declined for three years, and household loans for six years. Government bond issuance has increased, but much of it has been used for debt swaps rather than new credit expansion.

“China’s housing market has seen three major downturns during this crisis. Two have led to a spike in re-defaults. The third one, currently in the making, may lead to the same in 2027,” said Charles Chang, Greater China country lead for corporates at S&P Global Ratings. “The ongoing crisis left in place systemic risk concerns that are being exacerbated by the Iran conflict.”

Lulu Shi, director of Asia-Pacific corporate ratings at Fitch Ratings, said debt extensions or exchanges may ease liquidity pressure but would not address the developers’ fundamental challenges, including unsustainable financial structures, weak cash flows from subdued sales, and eroded confidence among homebuyers and financial institutions.

“Without improvement in these fundamentals, a re-default is almost inevitable,” Shi said. While such setbacks could further erode confidence, Shi said their impact on the homebuilding sector would likely be less severe than in earlier phases of the crisis.