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Safeguards tightened against bond default

By Zhou Lanxu | China Daily | Updated: 2020-11-23 07:17
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A clerk counts cash at a bank in Huaibei, Anhui province. [Photo provided to China Daily]

China's top body guiding financial regulation has called for intensifying the crackdown on defaulting on repayment of bonds to protect investors and minimize financial risks.

The State Council's financial stability and development committee released a statement one day after Saturday's meeting saying China will show "zero tolerance" for avoiding bond repayment and other bond market violations.

"We will intensify investigation of risks and hidden dangers while keeping liquidity reasonably ample, firmly safeguarding the bottom line of avoiding systemic financial risks," the statement said.

At the meeting, presided over by Vice-Premier Liu He, China's bond market was said to be in good overall shape with improvement in serving the real economy, but cases of default have increased recently as a result of cyclical, institutional and behavioral factors.

In response, regulating entities were called on to better protect investors' legitimate rights and, in accordance with laws, strengthen the crackdown on violations such as fraudulent issuance, disclosure of false information, malicious transfers of assets and diversion of proceeds from issued bonds to other purposes.

China will continue to promote sustainable, healthy development of the bond market and properly deal with the relationship between development and risk prevention, abiding by the principle of market-oriented, rules-based and internationalized practice, the statement said.

Regulators and self-regulatory bodies have stepped up efforts to fight potential wrongdoing in recent bond defaults by State-owned enterprises and to strengthen early detection and resolution of default risks.

The China Securities Regulatory Commission, the top securities regulator, announced on Friday it would undertake a formal investigation into potential information disclosure violations of Brilliance Auto Group Holdings and related intermediary institutions.

The industrial group, based in Liaoning province, defaulted in late October on a corporate bond with principal worth 1 billion yuan ($152.4 million). This was followed by a default of Yongcheng Coal &Electricity, based in Henan province.

The National Association of Financial Market Institutional Investors, a self-regulatory body of the interbank market, said last week that a few market intermediaries may have engaged in wrongdoing related to Yongcheng's default and it will conduct further investigations.

The National Development and Reform Commission will strengthen the detection of early-stage risks of bond defaults and urge related entities to find a solution and protect the rights of investors, it said on Tuesday.

Financial regulators and local governments should better supervise market entities in meeting their obligations, while the issuers and market entities must strengthen compliance, the statement released Sunday said.

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