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  • The Future of China’s Bond Market ed. by Alfred Schipke, Markus Rodlauer and Longmei Zhang
  • Thiam Hee Ng
The Future of China’s Bond Market, edited by Alfred Schipke, Markus Rodlauer and Longmei Zhang. Washington, DC: International Monetary Fund, 2019. Pp. 420.

China’s bond market has gained greater international recognition since the country’s transformation into the world’s second largest economy. At the end of 2017, the national bond market capitalization had reached 9 per cent of the global GDP, up from about 1 per cent in the early 2000s. The liberalization of the Chinese capital market, increasing globalization of domestic companies, and the inclusion of the renminbi (RMB) in the IMF Special Drawing Rights (SDR) basket have all contributed to the heightened interest in the nation’s bond market segment.

This book is very timely in providing a comprehensive overview of the Chinese bond market, and will appeal to both financial market professionals as well as academics. One interesting point is that, while the title refers to the future of the bond market, a large portion of the book is also devoted to documenting its historical progression.

There is no doubt that the rise of China’s bond market has been impressive. Nevertheless, there continue to be several challenges that need to be addressed to further enhance the market’s performance. By bringing together contributors from the International Monetary Fund, People’s Bank of China, China Securities Regulatory Commission, the Ministry of Finance, and the China Clearing Depository Corporation, this edited volume skilfully combines global expertise with detailed local knowledge to provide an in-depth analysis and policy recommendations. The book will appeal to academics conducting research on China’s financial system and investors looking to participate in it.

The book is divided into four parts. The first part provides a broad outline of the Chinese bond market and its place in the global financial system. It charts the rise of the market and elaborates on the different types of its constituent bonds. The authors also shed light on the process of opening up the national bond market and offer important suggestions to further reform and strengthen the segment. The two chapters [End Page 228] included in this part efficiently summarize the key developments and challenges of the market and serve as a comprehensive introduction to readers looking for a thorough overview.

The second part of the book provides a detailed analysis of six segments of the bond market in six distinct chapters. Chapter 3 focuses on sovereign bonds, whose market in China has grown to become the third largest in the world. Despite the expansion in demand, however, the low liquidity associated with such bonds suggests the yield curve of the financial instrument may not provide adequate information about the prevailing market conditions. This chapter also includes ample discussion regarding China’s monetary policy operations, and how gradual reforms over the years have improved the informational efficiency of the yield curve.

Chapter 4 looks at the credit bond market, which encompasses instruments such as enterprise bonds, corporate bonds, medium-term notes and commercial papers. It is important to note that state-owned enterprises (SOEs) dominate the market for enterprise bonds, while private firms tend to issue the other instruments. Even though banks remain the primary source of financing in China, bond financing has been picking up pace in recent years. The credit bond market, however, does face the challenge of housing too many different submarket segments, each with a distinct—and sometimes conflicting—set of regulations and trading platform. Another challenge is the perception of implicit government guarantees.

Chapter 5 then analyses the local government bond market, which has not just grown rapidly, but also overtaken the sovereign bond market. In particular, it highlights the factors that have led to this swift take-off. The author claims that, prior to mid-2014, such bonds were not too valuable as local governments were, in general, not permitted to issue financial instruments directly (except for a handful of limited cases). Hence, the majority of the fast growth can be attributed to: first, the change in government policy allowing provincial governments to issue their own bonds...

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