The National Development and Reform Commission (NDRC) Monday approved a host of enterprises to issue corporate bonds for 35.2 billion yuan (US$4.24 billion) in an effort to address their financial shortage.

The biggest issuers out of the 15 enterprises were the State Grid Corporation of China and China Netcom Corporation LTD, which have each obtained a bond quota of 5 billion yuan (US$602 million) apiece.

An anonymous commission official told China Daily that it is the second such approval this year, after ratifying six domestic enterprises to raise 7 billion yuan (US$843 million) of corporate bonds.

"We'll approve more enterprises to enter into the financing channel," said the official via telephone.

He said many enterprises are waiting for approval to issue the bonds but was not willing to unveil the waiting list.

He also said his commission, which is China's macroeconomics watchdog, is not designed to place a capped limit for corporate bonds any longer.

"We have to change our practice, which in previous years was to set annual quotas for corporate bonds," said the official. "Every enterprise which falls short of capital can apply to issue the bonds now."

The commission did not reveal the term of the bonds issued by the 15 companies, but usually it will range from one year to five years.

The commission said the Chinese companies actually issued 32.5 billion yuan (US$3.9 billion) of corporate bonds.

The official said the commission had designed strict standards for bond issuers to ensure their payment ability and protect investors' interests.

For example, the volume of bonds to be issued by a company cannot exceed 40 percent of its net assets. And its average distributable profits over the past three years should be enough to pay one year's interest on the bonds.

Meanwhile, the issuers should also disclose usage for the funds raised, which cannot be altered at will or used for businesses that are prohibited by the law.

A recent report from the State Council's Development Research Center was cited to reveal that China's bond market is lagging behind developed countries in terms of supply.

The structure of the bond market was also irrational. Treasury bonds and policy financial bonds accounted for a majority part of the market, while corporate bonds accounted for quite a small proportion.

Experts said the government will have to give key attention to the development of the corporate bond market in a bid to solve the financing bottleneck.

The bonds issued by the local government will be the highlight of further financing reform. Experts say that at least 500 billion yuan (US$60.4 billion) is needed to offset the capital gap of urban infrastructure construction. For example, the scheduled investment of 2008 Beijing Olympic Games is 300 billion yuan (US$36.2 billion), while Beijing's fiscal revenue in 2001 was only 45 billion yuan (US$5.4 billion).

Since China initiated reforms and opening up in 1978, the government has been continuously improving the nation's financial structure and creating a number of financial products.

A central bank official said the future goal for development of the bond market is to establish a united market for all financial institutions, companies and individual investors.

(China Daily September 16, 2003)