After a Covid-induced interlude, tackling China’s debt problem now appears to be back on Beijing’s agenda.

In the past two weeks, three state-owned firms​ have defaulted on bonds. One was a coal miner based in central China. Another was a carmaker, Brilliance Auto Group, which has struggled to make money beyond a joint venture it has with BMW. The third defaulter was Tsinghua Unigroup, a chipmaker laden with debt thanks to years of frenzied expansion.

This quick secession of defaults has been jarring for China’s bond market, which has had a relatively short history of dealing with defaults and even less experience with government-owned companies failing to pay their debts. Lending to state-owned firms has long been seen as largely risk-free, with the prevailing wisdom being that the government would pay back debts if the company couldn’t.

That logic seems to be on far less solid footing today than it was just a few weeks ago. The reaction in financial markets has reflected that.

A number of Chinese banks have begun cutting their holdings of bonds sold by state-owned firms, worried that more defaults are coming. Confidence was so shaken that a deputy governor of Shanxi, a coal-rich region in central China, took the unusual step this week of guaranteeing publicly that all the government-owned companies from his province would make their payments.

With the benefit of hindsight though, there were signs that this spate of missed payments was coming. Chinese policy makers have made it clear since 2016 that they view the country’s mountain of debt, which Bloomberg Economics estimates exceeded 300% of GDP last year, as a tremendous threat. And one of the key ways they had sought to rein in borrowing was more defaults.

It was only in 2014 that China’s bond market had its first default of any kind. Prior to that, when companies ran into trouble, be they private or state-owned, local governments stepped in to find a way to pay creditors. While that avoided painful losses and bankruptcies, it also left reckless borrowing and lending unpunished.

Since 2014, the number of missed payments has risen steadily each year. And while most of the defaults have been by borrowers from the private sector, a few state-owned firms have also failed to pay their debts on time.

But this year that trend of growing defaults went through a pause thanks to Covid-19. With much of China’s economy under strict lockdown in early 2020, China began pumping money into its economy to help buffer it against the pandemic. Authorities also began asking creditors to give borrowers more leeway in repaying debts.