Chinese Debt Capital Markets: An Emerging Global Market...With Chinese Characteristics

Abstract

This paper surveys the current state of the Chinese debt capital markets. As judged by its size and sophistication of its infrastructure the Chinese bond market it is already a leading market globally. China is unusual in that non-financial corporate issues account for a large fraction of the market as compared to financial and sovereign issues. Despite the fact that a large part of the market is made up of information sensitive securities, domestic ratings and other forms of information disclosure are relatively underdeveloped. The structure of the corporate bond market is shaped by three alternative channels that regulate security issuance and by different regimes governing alternative issuer types. These features are by-products of China’s gradualist approach to enterprise reform which has allowed central and local state owned enterprises to slowly shrink in importance relative to the private economy. In addition, large scale infrastructure investments undertaken by local SOE’s account for a large proportion of non-financial bond issues. Comparing bond values by issuer type and issue type reveals strong signs of market segmentation which may reflect varying degrees of implicit state guarantees.