By Liu Ming

According to statistics disclosed in the special symposium of central enterprise members of the National Association of Financial Institutional Investors (NAFII), 674 enterprises registered in NAFII to issue non-financial enterprise debt financing instruments in 2011, with an aggregate amount of RMB1739.8 billion Yuan, of which the total financing amount of central enterprises' debt financing instruments accounted for RMB868.88 billion Yuan, or 49.9 percent.

Compared with 2010, the financing amount of central enterprises continues to grow rapidly. In 2010, 424 enterprises registered in NAFII to issue non-financial enterprise debt financing instruments, with a total amount of RMB 1296.647 billion Yuan, of which the total financing amount of 96 central enterprises' debt financing instruments accounted for RMB549.85 billion Yuan, or 47.07 percent.

Zheng Xinying, deputy executive manager of the investment banking department of China Merchants Bank, says that high-quality enterprises, particularly central enterprises, tend to finance through debt financing instruments, mainly short-term financing bonds and medium-term notes, and the main reason for that is that this kind of financing method is more cost effective than conventional credit loan finance.

According to Zheng Xinying, the finance in inter-banks bond market takes a manner of credit finance. For high quality enterprises like central enterprises, the cost of financing can be 100 to 200 base points lower than loans over the same period. Take the 11 Yangtze Power CP02 Bond issued by China Yangtze Power in July 2011 as an example, interest rate of loan over the same period was 6.56, while the interest rate of the bond was 4.85; also, the interest rate of the 12 CNPC 01 Bond issued by CNPC in January 2012 was 4.54, but the interest rate of loan over the same period was 7.05. The cost is apparently lower for the financing enterprise. 

Also, the inter-bank bond market adopts a registration system, in which efficiency is high and financing time is controllable. The issuer only needs to submit required documents to NAFII for registration before it is allowed to issue bond. The procedure is simple, and successful registration takes only about 5 months for enterprises that are evaluated for the first time.

Besides, inter-bank short- and medium-term bond financing adopts a pattern of once-off application, installment issuance, and balance management. An enterprise only needs to apply for the total amount once, and, within its two-year validity term and its registered amount, can flexibly determine the financing period and issue bond by stages based on its capital demand. This helps the enterprise to reduce financing cost and extend the issuance period of the short-term bond, making short-term bond not that short-term.

In recent years, China's bond market has been developing at rapid pace. However, compared to mature markets in other countries, the proportion of direct financing of enterprises is still very low, and the development of non-financial enterprise debt financing instruments still needs to be further improved. According the central bank's statistics, in 2011, the total social financing amount in China was RMB12.83 trillion Yuan, and the net financing amount of enterprise bond was RMB1.37 trillion Yuan, accounting for 10.68 percent. In America, however, financing structure statistics in 2009 showed that enterprise bond balance accounted for 47.99 percent, stock capitalization accounted for 28.08 percent, and credit stock accounted for 23.93 percent. In Zheng Xinying's opinion, this is the very reason why the administration has been vigorously promoting the development of the bond market.  

Lu Zhengwei, chief economist of Industrial Bank, suggests that, based on recent changes of policies and financial environment, the golden time for the development of the bond market has come.

The economic work meeting of the central government at the end of 2011 attached great importance to making use of the positive function of the capital market to effectively stave off and resolve potential financial risks. The financial work meeting held earlier this year laid stress on stably expanding the volume of the bond market and promoting the innovation and diversification of products.

The excessive proportion of bank credit in the total social financing volume results in accumulation of risks within the banking system. Also, the banking system is required to have proper loan-deposit ratio and capital adequacy ratio. All these objective factors require the bond capital market to develop rapidly, so as to provide a more resilient market structure for the financial system and to ensure the steady development of the real economy.    

As for the exterior environment of the bond market in this year, Lu Zhengwei believes that 2012 will be a rather balanced year without extreme conditions, and the second and third quarters of the year will be a more favorable time for the issuance of bond.