On July 6, the Shanghai Stock Exchange (SSE) and the National Debt Association of China (NDAC) jointly held a symposium on the "Development of China's Bond Market". According to the "Some Opinions of the State Council on Promoting the Reform, Opening and Steady Growth of Capital Markets" or the "Nine Opinions of the State Council", the bond market should be vigorously and steadily developed. In line with the policy, the meeting aims to seek solutions to deep-rooted problems and explore the development route of China's bond market, in hope of establishing a uniform bond market. SSE President Zhu Congjiu addressed the meeting.
Officials from the China Securities Regulatory Commission (CSRC) and the Ministry of Finance discussed the development of China's bond market from the macro and policy perspectives. Financial experts and scholars as well as representatives from securities companies, fund management companies, assets management companies and commercial banks discussed on the key issues in the development of China's bond market in terms of theory and practice.
Zhu said in his speech that China's financial reform and development awaits many arduous tasks this year. The National Financial Work Conference at the beginning of this year has pointed out that vigorous development of the bond market is one of the main tasks for the capital market construction this year. Considerable achievements have been made under the leadership of the CSRC and active cooperation and promotion of all parties. Opinions are asked for to formulate the "Trial Rules on Debenture Issuance". As a very important act, this predicts the expansion of direct financing scale and the deepening of direct financing mechanism.
With a review of several years' development of the SSE bond market, Zhu said the treasury bonds market laid the basis of for the whole bond market. To promote the development of the treasury bonds market will facilitate the overall development of China's bond market and indirectly support the development of the stock market. The practice of China's bond market including the SSE in the recent years shows that, firstly, China needs a developed bond market; secondly, the secondary bond market needs to be further improved. The basic characteristics of the market are theoretically free trading and free pricing. But China's market still encounters many obstacles that contradict market rules. Thus, efforts should be made to overcome these obstacles that impede development of the market.
Zhu said that SSE's main responsibility is to provide a good platform for tradable securities so as to improve the market liquidity, facilitate the reasonable pricing and full trading of trading products and attract more participants. The platform is an indispensable part in the integrated bond market development. Therefore, the SSE introduced the "Comprehensive Electronic Platform of Fixed Income Securities" in light of the characteristics of the bond market development. The new platform can be used to re-organize the market trading system, which will promote the development of China's bond market.
According to Vice Director Hong Lei of the CSRC Investment Fund Supervision Department, the bond market development is vital to sound development of securities investment funds. However, the recent shortage of fixed income products has led to the low investment proportion in bonds by securities investment funds. So far, the assets of securities investment funds have reached RMB1.8 trillion. Nevertheless, in the development of the capital market, the fixed income investment has been greatly shrunk. 22 bond funds and 40 monetary funds remain, with a size of only RMB39 billion and RMB64 billion, respectively. What's more, the whole investment in bonds by securities investment funds is only RMB200 billion, or 11% of the whole assets.
Hong said that the crux of the recent bond market development is how to bring in long-term capital. The supply of securities investment funds' long-term capital is mainly from pensions. But the pensions, too much afraid of risks, will be difficult to step into the fund market. At present, the bond fixed income investment market, not big enough in scale, can hardly introduce a suitable product for pension investment. Only by enlarging the fixed income market can capital be lured, which then can be encouraged by the state to enter the fund market through more preferential tax policies. Meanwhile, the bond market development will change the profit mode of securities investment funds. At present, the major fund mode is to gain the spread on the secondary market. If the fixed income products are increased, more capital will be held, which will provide a wider prospect for the innovation of fund products.
Hong pointed out that to change the passive bond market development, firstly, the market credibility environment should be established; secondly, bond products related to enterprises and residents' life should be introduced; thirdly, pricing mechanism should be reasonable, and the market maker system should be introduced.
Director Feng Bo of the SSE Bonds and Funds Department detailed to the attendees the construction process of the fixed income platform and its features. He said that the electronic platform, with an aim to better serve China's fixed income securities trading, provides an efficient and low-cost platform for fixed income products including the benchmark treasury bonds, debenture and asset-backed securities. Besides, the platform introduces the market marker mechanism of primary dealers to improve the trading efficiency and the market liquidity. The test run of the platform started by treasury bonds will help to map out a true and effective bond yield curve of the securities market, thus giving full play to the benchmark function of market pricing of treasury bonds.
