Even if you aren’t well learned in economics or finance, it’s somewhat intuitive to know that a debt default is a bad thing. However, the one instance where it’s a bad thing to have never experienced a default is in terms of assessing price risk. Once investors have an idea of how or why a default occurs in a particular market, the market can more reasonably and accurately determine how valuable an entity’s debt is to investors. The perfect microcosm for this scenario is China. China has never defaulted on its debt, mostly because it manipulates in financial statements in such a way so that it constantly avoids default. In January, there was a resurgence in concern over China’s trust default risk. This resurgence in concern was spurred by Industrial and Commercial Bank of China’s (ICBC) refusal to repay a 3 billion yuan ($495 million) trust product expected to mature on January 31st. ICBC, China’s largest state-owned banking institution, distributed “2010 China Credit/Credit Equals Gold #1 Collective Trust Product” to raise funds for coal-miner Shanxi Zhenfu Energy Group. However, this was not the first trust product distributed by ICBC that raised red flags to the world financial community. There was the product sold by Shaanxi International Trust Co. Ltd. and AnXin Trust & Investment Co. Ltd was in trouble after a property developer missed the deadline to repay its debt. Business Insider notes that fears about systemic risks (regarding more wide-spread defaults) and investment risks (in terms of the loss of investor confidence) forced policy makers to eventually intervene and cobble together some kind of repayment schedule for investors to get their money back. The problem with this though is that by avoiding these defaults, China most likely did far more hard than good. It’s been a long and well-known maxim in the world financial community that the Chinese government would never allow a default to occur. Aside from the cultural circumstances surrounding the concept of default in China, the nationalistic integrity of the government would be at risk if there were to be a financial default by a government controlled entity. However, until a default occurs, the market will not be able to determine efficient allocation of resources. "At some point the financial system does have to turn the corner, where there’s real risk and there’s real pricing of risk," Patrick Chovanec at Silvercrest Asset Management stated. The fact is that China not allowing Credit Equals Gold to fail forced China to miss out on a key opportunity to reform its financial system…something that hasn’t exactly been high on China’s “To-Do List”.