At present, the phenomenon of favoring stocks over bonds prevails indeed in both the practical activities in the capital market and the "Securities Law", which is inconsistent with the rising status as the strategy of the capital market in the country to strive to develop the corporate bond market; therefore, how to improve or restructure the bond system in the "Securities Law" according to the inherent rules and basic characteristics of bonds has become an important subject of the law-governed securities sector, said Vice President Xu Ming of the Shanghai Stock Exchange (SSE) in his key-note speech at the 2nd "SSE Legal Forum" held in Beijing on November 26.
According to Xu, from the perspective of promoting the resource allocation by way of financing, the issuance of bonds is a crucial channel for corporate financing, so the bond market plays a very important role in financing for the capital market and contributes a lot to the domestic capital market. Meanwhile, it is of great significance to develop the bond market for the capital market maximizing its effects. Firstly, it is conducive to balancing the financing model of the capital market and weakening the influence of bank loans on the corporate financing, thus reducing the risks of the bank loans. Secondly, it is good to expand the corporate financing channels, promote the improvement and development of the corporate governance institutions and change the unreasonable financing model dominated by equity financing. Thirdly, it not only facilitates to satisfy the needs of different investors with varied risks for effective investment portfolios, but also helps to ensure the effective state macro control and regulation and the healthy development of the national economy.
In fact, in the evolution of the Chinese capital market, the bond market emerges earlier than the stock market but develops slower than the latter. In recent years, more and more importance is attached to the bond market, especially the corporate bond market, so the bond market has seen a growth. It rises into a strategy of the capital market in the country to expand the proportion of direct financing and greatly develop the corporate bond market. However, in the practice of the Chinese capital market, various participants have a better knowledge of stocks than bonds.
As for the gap between the status quo for the development of the domestic bond market and the strategic orientation of expanding the proportion of direct financing, maximizing the effects of the capital market and meeting the internal market demand, Xu pointed out that it reflected three problems as follows:
First of all, the inverted-pyramid structure of the capital market remains unchanged. Among the varieties of financing bonds in the mature capital market, a pyramid structure is formed for stocks, government loans and corporate bonds in order of scales while the inverted-pyramid structure with the stock market of the largest scale and the bond market the smallest in the country remains unchanged. For example, from 2008 to 2010, the financing scale for the stocks hit about RMB1,875 billion while that for the corporate bonds in the same period only accumulatively reached RMB153.4 billion, accounting for 8% of the stock financing. In contrast, the scales for the corporate bonds account for as high as 70% of the whole capital markets in the mature markets in Europe, the US and other countries.
Moreover, the corporate bonds have a small proportion in the whole bond system. Over years of development, the varieties of the bonds have been expanded from the single government bonds to central bank bills, commercial bank financial bonds, enterprise bonds, corporate bonds, small-and-medium-sized-enterprise combined notes. However, generally speaking, the bond market tends to be undiversified, which is dominated by the state credit bonds, accounting for over 80% of the total in the market. That means that the corporate bonds actually have a small proportion. Besides, the corporate bonds are mainly issued by the central state-owned enterprises or excellent local enterprises with a few by small and medium-sized enterprises for direct financing.
Furthermore, the role played by the SSE in self-discipline and regulation on the development of the corporate bond market is weak. As the self-disciplinary and regulatory institution, the SSE assumes the responsibilities of examining the listing of the corporate bonds, organizing and managing the bond trading and supervising the information disclosure conducted by the bond issuers. As a matter of fact, in recent years, the SSE has taken it urgent to greatly develop the bond market, so that the amounts of the bonds for custody, those of newly-listed bonds and those of bonds for trading by listing have been increased, and much progress has been made in the innovation of the bond products. All this indicates that the SSE should be able to give full play to its advantages and extend its influence in the development of the bond market. So, the "Securities Law" is expected to pave the way for the SSE in administrating the listing and trading of corporate bonds as well as regulating the innovation of traded bond varieties and their post-listing activities when being perfected in the formulation of the law of corporate bonds.
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Vice President Xu Ming Of The Shanghai Stock Exchange Calls For Further Improvement Of Legal System Of Corporate Bond Market
Date 30/11/2011