Bond issues up 52% in 2011 as market develops

Updated: 2012-01-06 07:42

By Gabriel Wildau (China Daily)

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SHANGHAI - Debt issues by mainland companies increased by 52 percent in 2011, as the country's bond market offered an increasingly viable alternative to the economy's traditional reliance on bank finance.

Bond issuance by mainland companies reached 2.58 trillion yuan ($410 billion) in 2011, Thomson Reuters data showed.

The remarkable growth in debt issuance shows that government efforts to develop China's capital markets as a means to diversify the country's over-reliance on bank loans is bearing fruit.

Issuance of short- and medium-term commercial paper accounted for most of the rise in issuance by non-financial companies, increasing 47 percent to 1.74 trillion yuan, as companies searched for new financing channels in the face of higher reserve requirements on banks, which crimped bank lending.

Debt issuance by commercial lenders grew as banks worked to replenish their funding base following the surge of stimulus-related lending in 2008 to 2010.

China's commercial banks issued 352 billion yuan in bonds in 2011, up from 93 billion yuan in 2010.

Among all categories of debt issuance, the largest increase in volume terms came from China's policy banks, which issued 1.91 trillion yuan of debt in 2011, compared with 1.26 trillion yuan in 2010.

China's three policy banks are China Development Bank, Agricultural Development Bank of China and the Export-Import Bank of China.

In contrast to soaring issuance in other categories, the corporate and enterprise bond markets remained relatively small.

Under China's evolving corporate debt regime, different regulatory agencies have approval authority over different types of debt, meaning the stance of the different regulators has a big impact on the development of each market.

Corporate bonds, which private companies issue with approval from the China Securities Regulatory Commission (CSRC), amounted to only 129 billion yuan in 2011, up from 51 billion in 2010.

The CSRC has been reluctant to encourage rapid growth in corporate bond issuance in recent years out of fear of further dampening the stock market, analysts said.

Enterprise bonds, which State-owned enterprises issue with approval from the National Development and Reform Commission, declined to 349 billion yuan in 2011, from 363 billion in 2010.

Companies' preference for commercial paper issuance over corporate and enterprise bonds is due to the less onerous approval process.

The People's Bank of China (PBOC), which has championed the development of China's debt markets, has authority to approve commercial paper issuance.

Short-term paper has a maturity of up to one year, while medium-term notes have maturities of up to five years.

Following the creation of the market in 2005, commercial paper rapidly surpassed corporate and enterprise bonds as the primary channel for non-financial companies to issue debt due to its speedier, less onerous approval process.

Despite the rise in company debt issuance, total bond issuance actually fell in 2011 when government bonds and central bank bills are included.

Central bank bills tumbled from 4.24 trillion yuan in 2010 to only 1.41 trillion yuan in 2011, as the PBOC aimed to soften the impact of a series of increases in banks' required reserve ratio.