An Analysis Of The System Factors Inhibiting The Development Of Corporate Bond Market

Finance is the core of modern economy. Financial market provides a platform for national macroeconomic regulation and control. It also provides investment and financing channels for market players, and liquidity and risk management areas for financial institutions and enterprises. Corporate bond market is an important part of the financial market of a country. In 2003, CPC Central Committee on Perfecting the System of Socialist Market Economy clearly pointed out,"While vigorously developing the capital market, actively expand the bond market, improve and standardize the issuance process, enlarge the size of corporate bond issuance ". After that, for several years in a row, the government work report mentioned "speeding up the development of corporate bond market." It can be seen that the government attaches great importance to the construction of financial markets, which points out the direction for the future development of corporate bond market.China's corporate bond market started in 1984. After years of development, it gradually changed from being non-standard to standard. Especially after 2005, it entered a period of rapid development. But compared with the developed countries and emerging market countries (regions), the size of financing of China's corporate bond market is relatively small. Its percentage to total GDP is too low, and financing structure is unreasonable. Its development seriously lagged behind, not only behind the corporate bond market development of aforementioned countries, but also behind the development of the domestic stock market. Serious lag in the corporate bond market makes it difficult for the corporate sector to improve their financial structure, transmit company information, and reduce financing costs through financial market. At the same time, it makes the positive spillover effects on the banking system difficult to achieve, because it is difficult for banks to improve their asset structure, asset quality and diversify risks by holding corporate bonds. It also leads to an imbalance in allocation of financial resources, and low efficiency.The dissertation studies the system factors that inhibit the development of China's corporate bond market. It consists of nine chapters. Chapter One is an introduction .It provides the research background, the purpose and current status of research, research ideas and research framework.Chapter Two reviews theory of corporate bond financing, including the financing structure theory, MM theory and its development, and asymmetric information theory. It also analyses the advantages of corporate bonds over equity financing and bank loans.Chapter Three discusses the current situation of corporate bond market development and reasons of delay. After a comparative analysis of the China's and some foreign countries'corporate bond market development, it is found that China's corporate bond market lagged far behind developed countries, not only in terms of the size of corporate bond market, but also in terms of corporate financing structure. This leads to the imbalance in China's financial resource allocation, and financial risk concentrated in the banking system, which is not conducive to social and economic development and stability. The chapter goes on to discuss the reasons for delay of China's corporate bond market development, including erroneous ideas, the stock market development issues, non-standardized corporate governance, imperfect laws and regulations, and more importantly, deficiencies in corporate bond market systems.Chapter Four analyses the current situation and problems of the operating system of corporate bond market. The operating system of corporate bond market includes the corporate bond issuance system and trading system. A comparative analysis reveals, on the one hand, the characteristics and experience of mature markets, and on the other hand, the problems with the operating system of China's corporate bond market. Problems with issuance system include excessive government intervention, small size of issuance, unreasonable pricing, lack of variety of bond types, short duration, strict issuance conditions, and to some extent, exclusion of SMEs to enter and so on. Problems with trading systems include lack of mobility, imperfect infrastructure, weak intermediaries, unsound debt protection mechanisms, backward social credit culture, and lack of integrity.Chapter Five focuses on the improvement of the operating system of corporate bond market. By learning the advanced experience of foreign mature markets, the chapter put forward some suggestions regarding corporate bond issuance system, including optimizing government functions, relaxing interest rate controls, marketizing bond issuance, innovating bond types and durations, encouraging SMEs bond financing. The chapter also makes some theory and policy recommendations regarding the trading systems of the corporate bond market, including improving market liquidity, developing market maker system, standardizing the credit rating of bond market, strengthening the social construction of credibility, developing innovative financial products, and cultivating mature professional institutional investors. The chapter then goes on to propose issuing high-yield bond, and establishing local SMEs bond market to address the issue of financing of SMEs. It also suggests issuing dollar bonds, to encourage domestic enterprises to "go global", and ease the growing pressure of foreign exchange reserves.Chapter Six focuses on the development of credit intermediary system - the basis of the corporate bond market. It mainly studies the credit intermediary system of China's corporate bond market represented by credit rating and credit guarantee system. It analyses the role of credit rating and credit guarantee system in corporate bond market, and discusses the century-old, more mature U.S. credit rating system and credit guarantee system. Subprime crisis has exposed the inadequacies and defects of the credit rating industry. China's credit rating market has a short history of development. Although the system has taken shape, there is still much to be desired. In addition to credit rating agencies, the chapter also analyzed the development of another intermediary organization that has a very important influence on corporate bond market: domestic and foreign credit guarantee institutions.Chapter Seven studies the question of how to improve the intermediary system of China's corporate bond market. The chapter makes some policy recommendations regarding the development of China's credit rating system, including speeding up financial innovation, creating market demand for rating, improving the legal system of credit rating, reconstructing credit rating system, enhancing the authority, objectivity and fairness of credit rating, strengthening the construction of internal management system of credit rating agencies, and establishing a reputation mechanism to improve the credibility of rating agencies. The chapter also discusses the hegemony of three U.S major rating agencies and the hidden hazards it has brought to the security of a country's economy, and puts forward the suggestion of building a credit rating system with Chinese characteristics. In view of the current situation of credit guarantee in China, it also make some suggestions, including making great efforts to develop mutual guarantee and commercial guarantee agencies, guarantee agencies themselves establishing a strict risk prevention mechanism, improving the laws and regulations of credit guarantee for SMEs. The chapter also recommends the establishment of more national professional credit enhancement company like CBIC.Chapter Eight focuses on the guarantee system for the effective operation of China's corporate bond market. The chapter analyzes the main content of guarantee system of domestic and foreign corporate bond market from such aspects as the regulatory system, legal system, and fundamental system of corporate bond market. The construction a reasonable regulatory system of the corporate bond market can be accomplished from three levels: First, the macro level of government regulation; Second, the middle level of industry self-regulation; Third, micro-level of internal control system. At present, China has initially formed a legal system of the corporate bond market consisting of laws, administrative regulations, departmental rules, regulatory documents, as well as self-regulatory norms of Stock Exchange. But the system is far from perfect. As for the fundamental system of corporate bond market, disclosure issues often occur in China's capital market. Foreign mature markets are characterized by a sound legal system of bond market, a comprehensive regulatory system for the bond market, mature market microstructure, solid fundamental system of corporate bond market.Chapter Nine, based on a comparative analysis of the guarantee system of domestic and foreign corporate bond market, proposes the idea of constructing the guarantee system of China's corporate bond market from aspects like the constructing sound corporate bond market regulatory system, attaching importance to the construction of fundamental system, improving corporate bond market laws and regulations.