The mainland should develop its bond market to reduce maturity mismatches between its long-term investments and funding sources, according to Morgan Stanley Dean Witter greater China economist Andy Xie Guoshong. Almost 100 per cent of the mainland's long-term investments relied on bank borrowings but sources of capital for the banks were mainly short-term in nature. Mr Xie said it was in the mainland's interests to develop the bond market. The mismatch issue was a key factor in the liquidity and credit crunch in the international trust and investment corporation (Itic) sector. Mr Xie said many Itics had off-balance-sheet foreign debt so exchange-rate adjustments in the mainland did not work as the textbooks suggested. He said the closure of Guangdong International Trust and Investment Corp (Gitic) represented Beijing's resolve to rein in irresponsible off-balance-sheet activities. Hongkong Bank's mainland business head Eddie Wang would not say if the bank would need to make provisions for its loans to the troubled Itic sector. Asked if the bank had tightened credit to red chips in the wake of Gitic's demise, Mr Wang said that it depended on the projects themselves. 'At present I am not worried about our loans to the mainland. There is always risk but I'm optimistic about the situation.'
