China has made progress in tackling financial risks

NEVER has China’s bond market had such a stormy spring. It has already set a record for defaults in the second quarter. The cost of credit for firms has shot up. Even the state-owned companies that invest in infrastructure, previously sacrosanct, are seen as risks. What has gone wrong?The answer is nothing at all. Defaults are progress for China, which needs to clear a backlog of accumulated debt. This year’s casualties amount to a mere 0.1% of the bond market. But that is still an improvement on the recent past, when investors assumed that the government would rescue any big firm in trouble. The real worry is not that the defaults will go too far, but that officials will lose their nerve.