Some global investors with an eye on China act as if trade friction between the mainland and the US is the only factor worrying markets. That has especially been the case for investors in China shares. But investors also need to pay attention to the dynamics of corporate credit in China — and not just the last salvo between the two competing powers.

The fact is, the country is in the grip of a credit crunch. The year 2018 saw a record number of defaults by number and total value, as Beijing clamped down on lending via both official and unofficial channels in an effort to slow the growth of debt, especially in the corporate sector. The cumulative value of troubled debt may be over $3tn, according to estimates from Hong Kong-based Clearwater Capital.

The growing number of defaults and non-performing loans are the product of both financial tightening and the fact that regulators are forcing the banks to cease efforts to conceal problem loans. As a result, China is joining India as a new hotbed for distressed-debt specialists. They include some of the most well-known firms across the Pacific, including Blackstone, Centerbridge and Oaktree, who join longtime investors in the region such as Avenue Capital or PAG. Some have relatively little business elsewhere, given that major central banks are still providing extraordinary levels of support.