(Bloomberg) -- Though Chinese issuers’ offshore bond defaults have slowed from last year’s record pace, they are making up an even-bigger portion of missed payments as borrowers focus on meeting domestic debt obligations.

All but 6% of public bond defaults by the country’s firms have been on offshore notes by issuance amount, a record according to data compiled by Bloomberg. Until last year, yuan notes dominated Chinese issuers’ delinquent bonds. But that switched as borrowers pushed to stay current with onshore debt, including by reaching deals to extend payments. 

There have been defaults on 6.67 billion yuan ($943 million) of local notes so far this year, the least since 2015. Delinquencies for offshore bonds have dropped more than 40% to $13.7 billion.

Moody’s Investors Service said in a report this month that the default pace on overseas Chinese corporate bonds should moderate over the next year while trends onshore are expected to remain relatively stable “amid government measures to support the property sector and improve domestic funding conditions.” 

With the offshore market still largely off-limits to Chinese developers selling new debt, “there is very little incentive for real estate firms issuing onshore to default,” said Bloomberg Intelligence credit analyst Timothy Tan.

Firms to default in 2023 have largely been those who previously missed payments, Bloomberg-compiled data show, a shift from the past few years where a majority were new delinquents. 

There’s been only four new borrowers to default this year, including KWG Group Holdings Ltd. It is among a small group of developers to have sold an onshore bond with state guarantees. The other first-timers are fellow builders Redco Properties Group Ltd., Risesun Real Estate Development Co. and Yincheng International Holding Co.

However, pockets of debt worries have flared up this quarter, highlighted by bond-price plunges for the likes of state-backed builder Sino-Ocean Group Holding Ltd. and conglomerate Dalian Wanda Group Co. China’s developer-dominated high-yield offshore market has posted eight-straight weekly losses, a Bloomberg index shows, the longest since a record 12-week streak in mid-2022.

In the property sector, there’s an estimated 13.6 trillion yuan of debt that’s at risk of default, according to Bloomberg Economics. That’s equal to 12% of China’s gross domestic product.

©2023 Bloomberg L.P.