China's companies need the ability to issue bonds, yet the development of the country's corporate debt market is glacially slow. Critics blame stick-in-the-mud regulators, but the real reason may be more complex.
Bonds are an essential instrument in the toolkit of any company looking to raise money. Until now, however, few Chinese companies have been granted permission to issue them.
The problem, say critics, is the reluctance of China's state planning authority, the National Development and Reform Commission (NDRC), to sanction new corporate debt issuance.
Last year, the NDRC approved corporate bond issues worth just 65 billion yuan. In contrast, China's banks extended new loans worth more than 2.3 trillion yuan. If the NDRC is unwilling to allow bond issuance on a larger scale, it has its reasons. The commission is anxious to avoid a repeat of the corporate debt splurge of the mid-1990s and its subsequent embarrassing series of defaults.
But the NDRC is not the only regulator involved. The People's Bank of China also has a crucial role and while the central bank is keen to support the development of a corporate bond market in the long run, it has good grounds to restrict debt issuance in the near term.
Among the central jobs of the PBOC is maintaining the stability of the financial system. As China's banks struggle to dispose of mountains of bad loans, the central bank is helping them to rebuild their balance sheets by making sure they earn fat profits on their lending.
