In recent years, the Chinese bond market has been booming. Companies have sold record amounts of bonds in the domestic market. Analysts have noted that none of these bonds have failed, indicating that market forces may not be working. This will change quickly. In Shanghai a small company is dangerously close to missing their annual interest payment, meaning they may be the first company to default on the domestic bond market. If even one small company defaults it could have big consequences for the overall Chinese bond market. Up to this point, investors in China are usually preoccupied with debt accumulation in local governments. However, if there is default in the domestic corporate bond market, this could change the landscape of debt in China. A partner at PriceWaterhouseCoopers in Hong Kong, Ted Osborn, asks, “if one of the domestic bond issuers were to default, would that cause the market to teeter or to crash?” Corporate Bonds were falling in the ChinaBond New Composite Total Return Index. In the past ten years, China’s bond market has expanded exponentially, rising from nearly nothing to the third largest in the world. Even though the scale is huge, China’s bond market is underdeveloped. The market is mostly closed to foreign investment and does not price in risk. Some believe that a few defaults will indicate that the market is maturing. With that in mind, corporate defaults could lead to instability of the country, especially when state owned companies are involved. There will probably be credit defaults in corporate and local government sectors in 2014 and China will have to wait and see how that effects the overall bond market.