Money

China must hasten bond market reform: PBOC adviser

(Agencies)
Updated: 2010-07-21 11:59

SHANGHAI - China must speed up reform of its opaque bond market as soon as possible to help accelerate the development of its financial sector, a central bank adviser said on Tuesday.

Xia Bin, one of three academic advisers on the People's Bank of China's monetary policy committee, said the progress of China's bond market reforms had been too slow, partly because of the absence of a single regulatory body.

China's bond market is fragmented into somewhat overlapping segments overseen by different government agencies, including the National Development and Reform Commission, the central bank and the securities regulator.

Red tape in getting bond issues approved and restrictions on the types of investors that can buy into them have also stunted development.

Xia suggested regulators replicate the liberalisation measures they have carried out in the stock market and the fund industry, via the Qualified Foreign Institutional Investor and Qualified Domestic Institutional Investor programs.

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QFII allows foreign investors to buy financial assets in China within certain quotas, while the QDII scheme allows for domestic funds to buy assets overseas.

"Since a fully liberalised market is not possible at this point, can we use other channels, such as the QFII and QDII schemes to promote the bond market?," Xia told a financial seminar in Shanghai.

Analysts say it is important for the bond market to develop, in part to give companies more fundraising options. Firms currently rely largely on issuing shares, bank loans and foreign investment for funding.

Xia said steps being taken to develop an offshore yuan bond market in Hong Kong would complement efforts to develop the bond market in the mainland.

"This does not go against Shanghai's goal to become an international financial hub by 2020 because an offshore yuan bond market in Hong Kong will help Shanghai achieve that goal," Xia said.

On Monday, China took a big step towards internationalising the yuan by tweaking rules to allow the sale of yuan-denominated financial products in Hong Kong and giving companies greater access to yuan funds. [Mainland, HK sign pact for RMB business in HK]