Recent action by Chinese regulators is set to ease some of the
difficulties encountered by Chinese companies (including foreign
owned subsidiaries and joint ventures) in raising capital, and
provide new business opportunities for foreign incorporated local
Lower threshold for corporate bond issues
The People's Bank of China (PBOC) issued a notice on 7
January 2009 (PBOC Notice No.1, 2009) removing the minimum
threshold for bonds issued in the Chinese inter-bank market. This
move will allow unlisted enterprises greater access to the emerging
corporate bond market and be of particular benefit to many small to
medium sized enterprises that previously were excluded from the
bond market because of a RMB 500 million (US$73.2 million) minimum
issue limit which has applied since 2004.
While the notice only extends to bonds approved by the National
Reform and Development Commission (NDRC) and traded on the
inter-bank bond market (and not to bonds listed on a stock exchange
and which are approved by the China Securities Regulatory
Commission [CSRC]), the inter-bank bond market is by far the
largest corporate bond market and so should allow many companies
greater access to alternate forms of capital.
Enhanced trading opportunities
In another related development, Reuters reported on 8 January
2009 that China's banking regulator, the China Banking
Regulatory Commission (CBRC) has told selected foreign banks that
they may underwrite and trade bonds on their own account in the
inter-bank bond market on the same basis as local Chinese banks.
The development was foreshadowed by a CBRC notice issued on 26
December 2008 (CBRC Notice No 91, 2008) permitting wholly funded
foreign banks incorporated in China and sino-foreign joint venture
banks to trade and underwrite corporate bonds in the inter-bank
market. After an announcement in December 2008 following the
conclusion of the fifth US-China Strategic Economic Dialogue it was
expected that foreign banks would be allowed to trade bonds in the
inter-bank market, both for their customers and their own accounts,
but at this stage trading on the account of customers has not yet
been formally approved.
An evolving market
The last 12 months have seen significant developments in the
opening up of the Chinese domestic bond market. These new
initiatives reflect the State Council's desire to diversify the
sources of funding for local companies away from the traditional
bank and equity markets.
Other recent developments include the successful Pilot Rules in
September 2007 allowing CSRC to approve listed corporate bonds, and
detailed rules and guidance notices issued by CBRC relating to
issuance of short term commercial paper and medium term notes which
were reactivated in October 2008.
While the corporate bond market is still small compared to the
bank debt market, these recent developments are important steps in
the evolution of a multi-layered debt market.
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