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One of the nation's top financial regulators revealed on Wednesday the authorities are looking at ways to give the corporate bond market a lift.
Zhang Dongsheng, director of the Department of Fiscal and Financial Affairs of the State Development and Reform Commission, said this could include giving the green light to small and medium-sized enterprises (SMEs) to jointly tie up and issue bonds.
China's is expected to issue even more corporate bonds than last year's total of around 40 billion yuan (US$4.8 billion), said Zhang, the corporate bond issuance regulator.
Speaking on the sidelines of a Beijing conference, Zhang said the expansion will be gradual.
The corporate bond market will be increasingly standardized and more market-driven rules will be adopted, said Zhang.
The State currently has a big say over corporate bonds, with the authorities setting quotas deciding how many will be issued. The market is also dominated by large State-owned enterprises and those undertaking key construction projects, such as power and infrastructure facilities.
But Zhang revealed the steps could be taken to let smaller firms play a greater role. "Discussions are currently going on over whether several SMEs can come together to issue bonds."
He pointed out that it is simply uneconomical to issue a relatively small volume of corporate bonds, such as one million yuan, for only one business. That results in high costs for both the issuer and the underwriter.
Costs would be cut if several of them could jointly issue bonds, though the precise method is still being studied, he said.
Domestic enterprises have been looking for more diversified sources of funding in order to sustain their growth as the nation's economy continues its rapid expansion.
But the corporate bond market has failed to grow at the same rate as the stock market. Increasing calls are being made for new legislation and allowing free competition in the sector, although this process is certain to take time.
Large enterprises still have their hands on most of the resources.
The Beijing Tourism Group Co Ltd Thursday launched a 1 billion yuan (US$120.7 million) bond offering, hot on the heels of Sinopec's 3.5 billion (US$422.7 million) bond issuance earlier this month.
Funds raised from the new bond, which has a 10 year term and a floating interest rate, will be ploughed into expansion project of the Beijing Hotel, which is owned by the tourism group.
(China Daily February 20, 2004)
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