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China: Bond regulators vie for control of a fragmented market

Barbarians at the Wall

One of the main barriers to the development of a healthy bond market in China is the fragmented regulatory system. Treasury bills aside, there are three main categories of bonds and each has its own regulatory body, disclosure requirements and restrictions on who may invest.

Corporate bonds, issued by listed companies, are regulated by the China Securities Regulatory Commission (CSRC). These include the bonds issued by financial institutions that make up the bulk of the corporate market: bonds worth a total of Rmb97 billion ($14.2 billion) were issued in 2008, according to figures from Credit Suisse Founder Securities, as against Rmb28.8 billion of non-financial corporate bonds.

"Financial institution bonds," says a Beijing-based banker familiar with the market, "account for most of the liquidity in the system as they are frequently traded on the inter-bank market. There’s a lot of mutual back-scratching as banks buy each other’s deals, and fees are very low. It’s the largest and most liquid non-treasury bond market but also the one that’s least promising for foreign institutions." The trading of financial bonds on the inter-bank market is supervised by the National Association of Financial Market Institutional Investors, a self-regulating body created by the chief participants in the market.

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