Corporate bond regulations relaxed

Securities

14 June 2007

The central government loosened regulations on corporate bonds in draft rules published yesterday and expects the corporate market to expand as a result, the Financial Times reported. New rules transfer the oversight of corporate bonds by publicly listed companies from the National Development and Reform Commission (NDRC) to the China Securities Regulatory Commission (CSRC). In the past, corporate bonds functioned like bank bonds, and only a few state-owned enterprises were allowed to issue bonds through a quota system set by state commercial banks. The shift to the CSRC will eliminate the existing quota system and allow market mechanisms to control bond and interest rate fluctuations, requiring assets to come from companies instead of banks. Over 90% of China's corporate financing currently comes from bank loans. This transfer is intended to expand  to all companies with viable corporate structures, eventually leaving only large SOEs with bank bonds under the NDRC's oversight. Total corporate bond issuance last year was US$13.76 billion, and so far this year it has reached US$13 billion.