Analysts wonder 'how long' before another SOE misses a payment, reports Zheng Yangpeng.

As China's stock market has inspired, but also given the jitters in equal measures to some investors after a long rally in recent months, the nation's bond market has presented a different story.

A power-transformer maker has become the country's first State-owned company to default in the onshore note market, and the second in just a fortnight to default in China's fledgling bond market.

Baoding Tianwei Group Co, a unit of China South Industries Group Corp, said on Tuesday it cannot meet interest payments due on a bond, according to a statement it filed to Chinabond.com, a website run by the official China Central Depository & Clearing Co. The company insisted they will continue their effort to raise the repayment money by disposing of assets.

But the statement did not come as a surprise.

A week ago, in a similar announcement, Baoding Tianwei revealed that because of "huge losses" last year in its new energy business, it might not able to repay the 85.5 million yuan ($13.8 million) in interest due on five-year, 1.5 billion yuan medium-term notes it issued in 2011.

Last Tuesday, Cloud Live Technology Group Co, a restaurant-turned-Internet firm, also missed a principal payment, becoming the second privately owned company to default on onshore bonds after Shanghai Chaori Solar Energy Science & Technology Co, which defaulted on its interest payment a year ago.

While two private firms have now reneged on debts, no State company before Baoding Tianwei had defaulted on an interest obligation in the domestic bond market.

Traditional wisdom is that while the government may allow insignificant private firms to default as a way of alerting investors to the lurking risks, they will not allow SOEs to miss debt obligations due to the possible larger impact.

Speaking at a news conference after the annual legislative sessions in March, Premier Li Keqiang pledged to prevent a systemic and regional fallout, while allowing individual cases of financial risk.

That wisdom might not apply to Baoding Tianwei, however.

After a failed venture into the once-thriving photovoltaic sector, Baoding Tianwei Baobian Electric Co, a listed subsidiary of Baoding Tianwei Group Co, spun off its bad assets to the parent group, leaving it with a vast collection of nonperforming assets.

The parent has posted four straight annual losses since 2011 and by the end of 2014, its asset value was just 60 percent of its liabilities.

"Banks and other institutions have been very pessimistic about the group's repayment ability," wrote analysts Wu Wuyuan and Lin Hua from China Credit Rating, in a research note.

The group's 22.96 percent stake in the listed firm, which could have been sold to repay the debt, has already been frozen by local courts because of a dispute with creditors.

And adding to its woes, the Baoding branch of Agricultural Bank of China Ltd has now revealed it transferred money from one of the group's accounts, without telling Baoding Tianwei, so it was repaid for an outstanding debt.

In theory, the group's overall holding company, the powerful China South Industries Group Corp, could have lent a hand.

But according to Wu and Lin, in recent years the group has been marginalized within China South Industries.

"China South Industries has deprived the group's controlling stake in the listed firm and put bad assets under its account. So the group has become irrelevant to its parent company's internal structure. China South Industries could even allow it to go bankrupt," Wu and Lin said.

Baoding Tianwei's corporate story is not unique in China.

During the 2009-11 economic boom, a labyrinth of subsidiaries under central SOEs decided to diversify their business, diving into unrelated, but potentially lucrative businesses.

As the tide faded, however, these companies have ended up with a diverse range of interests and large overhanging debt.