This could end up being a seminal event. China lets state firms default on derivative contracts The Reuters story makes it sound like soybean and gold derivatives are the issue, but this blogger has astutely noticed that the more important issue could be oil, and China's gripe being price manipulation of the underlying asset by Wall Street banks. China and the Buzz of Default The banks involved may already be technically insolvent under any fair market valuation of their Level 3 assets, and whatever derivative liabilities Chinese state owned enterprises may have are booked as some counterparty's assets, probably the bank's. Defaults by Chinese SOEs would just worsen their balance sheet. I imagine that this is being taken very seriously.