Privately-owned enterprises (POEs) defaulted on about 12.5% of their matured bonds in 2018 and up until October in 2019, compared with less than 0.2% by state-owned companies (SOEs), according to S&P. Since 2014, POEs have had a cumulative default rate of 12%, dwarfing SOEs' 0.2%.

Private companies also repaid more than they borrowed in the bond market.

Their 2019 'net bond financing' was negative 206 billion yuan by the end of October, widening from negative 30.5 billion yuan ($4.33 billion) in 2018.

By contrast, state-owned companies were able to borrow more than they repaid in the market. SOEs' net bond financing stood at 1.9 trillion yuan, up from 1.4 trillion yuan last year.

"POEs are being squeezed out of the bond market," S&P said, predicting the overall default rate in the onshore Chinese market - already topping 100 billion yuan at the end of October - will exceed last year's 110 billion yuan.

The actual rate of defaults may be higher still given that more businesses have sought to settle their debt privately and hence on undisclosed terms since early 2019.

"Many issuers resorting to this debt repayment method have reported liquidity problems," said S&P.

There are already 46 issuers that have defaulted so far this year, higher than 39 in 2018, according to official data compiled by Reuters.

Chinese companies may also face repayment pressure in the offshore market, where $200 billion of bonds will mature over the next two years, more than $89 billion in 2019, said S&P.

GRAPHIC: SNP chart Nov 25 report defaults https://fingfx.thomsonreuters.com/gfx/mkt/12/9110/9022/SNP%20chart%20Nov%2025%20report%20defaults.jpg

By Noah Sin