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| China Must Develop Its Bond Market |
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The underdevelopment of Chinese Premier Wen Jiabao stated on Monday in the government report that Currently, Chinese companies rely primarily on bank loans, foreign investment and capital raised on the stock market for their financing. "The current situation is abnormal. A rapidly growing and diversified economy like ours definitely needs more corporate bonds," said Wu Jinglian, a famous economist and member of the National Committee of the Chinese People's Political Consultative Conference (CPPCC)." The economist said that in mature market economies, corporate bonds are a key method of corporate financing. In contrast to shares, which may be acquired speculatively, corporate bonds represent a stable, long-term source of financing. Many Chinese companies have insufficient self-financing. Statistics show that over the past decade self-financing, including stocks and corporate bonds, stood at only 10 percent for Chinese firms, as opposed to 70 percent in the In contrast to some of the world's leading economies, Chinese companies have relied heavily on the stock market rather than the bond market. Experts said the bond market was encumbered by both red tape and inefficient supervisory mechanisms. According to Chinese law, domestic companies have to wait as long as a year before being authorized to issue bonds. "Without a prosperous bond market, "The opaqueness of the bond market can make it attractive for illegal funds," said Ni Runfeng, former president of Sichuan Changhong Electron Group Corp. "Take Wuxi Suntech Power Co. for example. Despite all the money available in the domestic market for corporate financing, the company had to seek out private overseas funds in order to be able to list," Ni said. "If Wuxi Suntech had been able to issue corporate bonds, that would have been a much more satisfactory solution." "We are working on a mechanism to make it easier for companies to issue bonds," said Zhu Congjiu, general manager of the Shanghai Stock Exchange. According to the third national financial work conference concluded in January, the China Securities Regulatory Commission will supervise corporate bond issues and the National Development and Reform Commission will examine SOE bonds related to fixed assets investment. But it is not yet clear who will have the final responsibility for developing the bond market. "I think we should set up a consolidated supervision mechanism and I think securities regulatory organs should play a leading role in it," said Zhu. Earlier reports said that Chinese corporate bond issues will approach 160 billion yuan in 2007 -- up a whopping 55 percent on the 2006 figure of 101.5 billion yuan. (Xinhua News Agency March 7, 2007)
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