China’s $4tn corporate bond market is ticking ominously. Last year set a new record for defaults. This year the figure is likely to be higher still. Beijing wants to reform the market, reducing leverage at the same time. This perilous situation is set to worsen before it gets better.

After years of debt-driven corporate spending, defaults on Chinese offshore bonds are surging. The figure of $2.7bn recorded in January is about one-third of last year’s total. The biggest contributor was a $2bn default by semiconductor company Tsinghua Unigroup.

Stakes are high for foreign investors. Dollar bond issuance has swelled as Chinese companies rushed to secure offshore funding. More than $100bn worth of bonds will mature in the offshore market this year.