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Bond market heading for consolidation

By Shangguan Zhoudong (chinadaily.com.cn)
Updated: 2007-05-24 14:08

China has completed the amendment of the regulations on enterprise bonds and will launch the new rules soon, according to Securities Daily.

Insiders said theChina Securities Regulatory Commission(CSRC) will replace theNational Development and Reform Commission(NDRC) to supervise the bond market.

Related readings: China bonds fall as CPI fails to end rate worries Central bank issues bonds to curb excessive credit supply China may allow enterprises to issue bonds via private placement

Analysts said supervisory power transfer means China's securities market are heading for consolidation.

"We should focus on developing the corporate bond market and expand direct financing," said CSRC vice chairman Gui Minjie recently.

"Conditions are basically ripe for developing the corporate bonds market," added another CSRC vice chairman Tu Guangshao.

China's bond market lagged behind the domestic stock market. Statistics show that, by the end of 2006, a total of 5.75 trillion yuan (US$743.86 billion) of bonds were issued, accounting for 27.44 percent of China'sgross domestic products (GDP) last year, far lower than 163.11 percent, the average in developed countries. This is also far below the proportion of China's stock market value to the GDP.

By the end of 2006, national debt, financial bonds and corporate bonds made up of 50.56, 44.19 and five percent respectively of the total bonds issued. Only 283.1 billion yuan of corporate bonds were issued by the end of last year, accounting for only 1.35 percent of the GDP.

Insiders say the slow pace of the corporate bond market was due to overlapped supervision and inefficient management systems. In the primary market, corporate bonds must be approved by NDRC and the convertible bonds must be approved by CSRC; in the secondary market, CSRC must supervise the exchanges and the central bank controls the inter-bank markets. The complicated approval system restrained the development of the bonds market.

Currently, the government is doing public consultation on a new bond issue system, including a checking system and a sponsor system.

China will allow more enterprises, including some small- and medium-sized enterprises to issue corporate bonds; it will also encourage multinationals, which have investments in China, to issuerenminbibonds and invest in projects in China, according to the revised regulations.

Meanwhile, the new regulations allow enterprises to issue, buy and sell bonds in inter-bank markets.