To further materialize related spirits of the third plenarysession of the 16th CPC Central Committee and the Security Law aswell as the Company Law, promote development of corporate bond marketcontinually, the People’s Bank of China publicized the Announcement on RelatedMatters Regarding Corporate Bonds Entering the Inter-bank Bond Market forTransaction and Circulation (No. 30 [2005]), which puts forward measuresconducive to standardizing transaction and circulation of corporate bonds aswell as advancing the development of the corporate bond market. TheAnnouncement includes the following content: simplifying procedures by changingthe examination of corporate bond’s transaction and circulation from a prior approvalapproach to a verification approach; allowing all investors in the inter-bankbond market to invest in corporate bonds; requiring issuers to conduct continuedinformation disclosure and track credit rating agencies to continuously providecredit rating of the bonds; encouraging market-makers and underwriters to makebilateral quotations, and etc.
Decisions of the Central Committee of the CommunistParty of China on Issues concerning the Improvement of the Socialist MarketEconomy adopted by the third plenary session of the 16th CPC CentralCommittee points out that we shall actively expand bonds market and enlarge theissuance of corporate bonds. In recent years, the People’s Bank of China has donea lot of work through the inter-bank bond market. The inter-bank bond markethas already become an OTC market participated mainly by commercial banks,security companies and insurance companies and numerous non-financialinstitutional investors. Bonds held by these players and trading volume of theinter-bank market account for an overwhelming majority in that of the wholebond market. However, the corporate bond market still suffers from limitedmarket scale, lack of liquidity, concentration of investor groups anddeficiencies in information disclosure and credit rating systems, etc. Tovigorously develop corporate bond market and increase the proportion of directfinancing has become a top priority in order to improve the functions of bondmarket as well as the financing structure in China.
On October 27, 2005, the amended Security Law and the Company Law wereenacted at the 18th conference of 10th National People’sCongress, reflecting the determination of all circles to promote development ofthe securities market, including the corporate bond market. Offering fixedincome and often transacted in large-value, bonds, especially corporate bonds,have been proven by experiences in many developed markets as suitable forinstitutional investors and for OTC transactions. We shall definitely followthis trend to develop China’s corporate bond market by targeting institutional investorsand relying on OTC markets. The said policy announcement by the People’s Bankof China embodies its consistent philosophy of relying on OTC markets,fostering institutional investors and improving market discipline mechanismssuch as information disclosure and credit rating to promote the development ofcorporate bond market. After changing the examination of corporate bonds’transaction and circulation from a prior approval approach to a verificationapproach, it will be easier for corporate bonds to enter the inter-bank bondmarket, which will leads to large flow of corporate bonds into the inter-bankbond market and promote the switch to OTC transactions. Allowing all members ofthe inter-bank bond market to invest in corporate bonds shall enlarge theinvestor base of the bond market; in addition, a market-making system will helpfurther enhance the liquidity and the capacity of corporate bonds market. Withthe introduction of mandatory information disclosure, continued credit ratingand other supporting measures, market discipline will be strengthened andmarket transparency as well as pricing ability shall be heightened.
This policy adjustment is another big step towardmarket-orientation of the corporate bonds circulation market, conducive toaccelerating corporate bonds market’s switch to a normal development trackfeaturing qualified institutional investors and OTC transactions, and promotesa standardized and rapid development of the corporate bond market.
