Fitch Ratings says in its latest China Research Initiative Blue Book that the development of China's fast-growing corporate bond market is being hampered by regulatory fragmentation. Several government agencies oversee a market for domestic bonds that is split among the interbank market, the stock exchange market and bank counters.
A more mature corporate bond market would provide better alternative means of funding, diversify risks from banks, and help facilitate more accurate credit risk pricing.
The corporate bond market in China is currently dominated by state-owned enterprises. Fitch expects that private entities will achieve greater access to bond funding as the central government further liberalises the corporate sector. There is evidence that debt yields for corporates with different credit profiles are beginning to diverge, though thin trading volumes on the secondary markets still explain much of the spread differentiation.
Participation in the domestic bond market by offshore investors' has been rising, mainly due to higher onshore yields. But a healthier credit culture with greater regulatory tolerance for outright defaults, as well as better documentation and information disclosure, would help accelerate the development of China's corporate bond market and further enhance offshore investors' confidence.
Fitch's report, titled "China Corporate Bond Market Blue Book: Opportunities and Risks Abound as Debt Market Takes Shape" is the latest in a series of Fitch China Research Initiative publications dedicated to providing comprehensive, in-depth research and insight into the key credit aspects of corporate sectors in China.
The full report is available on www.fitchratings.com or by clicking on the link in this media release.
