China corporate bond market set to double
Debt sales to grow but Beijing should allow firms to raise capital, say analysts
China's tiny corporate bond market is set to double this year after the government's central economic planning authority announced it would approve an additional 60 billion to 80 billion yuan of debt sale.
In December last year, the National Development and Reform Commission (NDRC) approved 43 companies to sell 60.8 billion yuan of corporate debt this year but have now asked the State Council to allow it to more than double that, according to a report in the China Business Post.
'This is an important improvement but the NDRC should be giving enterprises much more freedom to raise capital through bond issuance,' HSBC economist Qu Hongbin said.
About 15 billion yuan of the new bonds will be offered by the Ministry of Railways to fund railway construction and the rest will be allocated as quotas to favoured state-owned enterprises.
State-owned enterprises raised 65.4 billion yuan from corporate bond sales last year, according to the commission.
That represents about 34 per cent of the 188.3 billion yuan raised through public offerings and pales in comparison to the government's 2.5 trillion yuan target for new bank financing this year.
By allowing more bond offerings the commission is trying to protect a patch of its regulatory turf which has come under threat from more liberal and reformist branches of the government, including the central bank and the securities regulator.
In the past year the People's Bank of China has established an interbank market for short-term commercial bills with maturities of less than one year that saw 82 billion yuan of debt sold by 31 companies in the five months to November.
'There is a vibrant, active interbank market for short-term corporate paper that has superseded the corporate bond market regulated by the NDRC, which still imposes a stringent authorisation process and carefully controls interest rates,' said Standard Chartered economist Stephen Green.
Meanwhile, the China Securities Regulatory Commission has been promoting convertible securities, which fall under its jurisdiction, as another alternative for companies to raise funds.
'The fragmentation of regulatory control over the sector means China's corporate bond market has not progressed as quickly as it could ... have,' Mr Qu said.
Even officials at China's banking regulator are supportive of a more vibrant corporate debt market because they said continuing banking reforms would not be truly effective until there was tangible competition for funding sources in China.
At present, it is estimated at least 90 per cent of corporate financing comes from the state-owned commercial banks.