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BIZCHINA / Center

China should boost direct funding channels

(Reuters)
Updated: 2007-06-11 17:11

China should take advantage of its flush liquidity conditions and low
interest rates to boost non-bank financing as a way of developing more
mature financial markets, a senior central banker wrote on Monday.

Chinese firms have long relied too heavily on bank loans as a source of
funding, sparking concern that the nation's lenders are carrying too much
risk even as some are still struggling with a legacy of bad loans.

Ma Delun, assistant governor of the People's Bank of China, wrote in the
official People's Daily that abundant capital and low rates were creating
opportune conditions for companies to raise funds cheaply and directly in
domestic financial markets. China should do more to spur direct financing
by taking a number of steps, including allowing firms to issue bonds
without having to secure bank guarantees for all bond issues having
maturities of more than one year, Ma said.

The suggestion was in line with pledges to facilitate easier access to
the market by the National Development and Reform Commission (NDRC), the
country's top economic planner and a supervisor of the corporate bond
market.

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China should also allow financial institutions to be able to securitise a
broader range of assets that were underpinned by stable capital flows, he
wrote.

To help boost the nation's fledgling capital markets, Ma said China
should allow institutional investors such as securities brokers, insurers
and pension funds to invest in a wider range of products.

The government should also allow more foreigners to participate in
Chinese financial markets by broadening the investment scope of the
qualified foreign institutional investor scheme, known as QDII.

China should consider allowing some foreign investors to enter the
interbank bond market, he said.

China's corporate bond market has expanded rapidly in recent years. The
NDRC gave its approval in March for 95 firms to issue a record 99.2
billion yuan ($13 billion) in bonds in 2007, up from 60.8 billion yuan in
2006.

State media have reported that the agency is considering raising the
quota to $39 billion this year.

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