Our monetary chief, Joseph Yam Chi-kwong, is arguing for the creation of a local currency debt market to help small and medium-sized firms get the money they need. He says it is particularly pressing now with domestic Hong Kong loans falling continuously because banks are reluctant to lend. It's a good idea, has always been a good idea, will always be a good idea, but unfortunately faces a few obstacles which mean it will probably remain an idea. The immediate objection from bankers is that only big companies would use such a market because small to medium-sized companies are not rated by credit agencies - a precondition for selling debt - and investors may shy away from company debt they don't understand. This may be true but we are talking Hong Kong dollar debt here, not big US dollar denominated international issues. Hong Kong people know their companies better than foreigners and small local credit agencies would probably soon be set up. They have been in other Asian countries. The bigger failing of the idea is that it may be based on a misunderstanding of local currency debt. Our big firms are not big borrowers. They tend to be risk-averse, cash-rich corporations that go heavily into debt only if they cannot avoid it. In fact, small to medium-sized companies have always been the backbone of the corporate loan market. The average company in Hong Kong employs less than 20 people. Our banks would love to indulge in favouritism of the big boys but they can't. It's too small a market. Let's also put some emphasis on the fact that the biggest single proportion of lending in Hong Kong actually goes to individuals. This is 40 per cent of the total now, up from 33 per cent two years ago. A substantial if unquantifiable proportion of this is actually lending to small companies. So it won't do to argue that the man on the street and his little company are suffering because big companies are hogging all the money. Mr Yam has not quite said this but it's a common perception. What we then come back to is if banks are not lending to small companies it is either because small companies are not asking for the money or because of a commercial judgment by professionals in the business that not enough small companies are worth the risk just now. Why should a debt market look at it any differently? Investors in debt would be taking a big risk if they think they are cleverer than bankers who look at small companies every day. It's a decent bet, however, that enough of them are clever enough to realise that they are not actually that clever. You can score that as a big stopper to quick success for a small-company debt market. But we already have a local currency debt market and it is a very sizeable one. There is $100 billion in Exchange Fund bills and notes outstanding and another $300 billion in other Hong Kong dollar debt instruments. This is the equivalent of 25 per cent of all Hong Kong dollar loans by all authorised institutions. Even at this size, however, it is not a particularly liquid market and this introduces two other reasons why small companies do not feature heavily in it. The first is that if you are trading small-company debt instruments you want marketability for them. It's not like being content that the Mass Transit Railway will never go out of business. If things go wrong in small companies you want the opportunity to get out. If you don't have it you won't go in. The second is the general theorem that the less liquid the market the higher the spreads. Small companies looking at it may still find that banks offer them a better deal after considering the costs of going there plus the interest rates they have to pay. So it's a grand dream, Mr Yam. Dream on.