Instruments

Six major types of bonds are currently issued in the People's Republic of China (PRC): treasury bonds, People's Bank of China (PBC)  bonds, policy bank financial bonds, corporate bonds, commercial paper, and medium-term notes (MTNs).

Treasury bonds are debt instruments issued by the Ministry of Finance (MOF) to raise funds for large development projects and to cover budget deficits.

Policy bank financial bonds are issued by the three policy banks as their primary source of funding. The three policy banks are the China Development Bank, Agricultural Development Bank of China, and Export–Import Bank of China.

Corporate bonds are issued by state-owned enterprises (SOEs) or foreign joint venture enterprises to raise additional capital. New guidelines from the Chinese Security Regulatory Commission (CSRC) will allow corporations for the first time to issue bonds without bank guarantees, which could lead to private-sector domestic corporations issuing bonds.

Commercial paper are notes issued by corporations for short-term funding.

Medium-Term Notes are issued by SOEs and other firms, subject to the approval of shelf registrations by the National Association of Financial Market Institutional Investors (NAFMII), a trade body established by the PBC. MTNs typically have tenors of 3-5 years. One advantage of the NAFMII-regulated MTN window is the often quicker approval process for bond issuance.

Securitization

From the middle of the 1990s to the early 2000s, there had been only a few PRC-related asset-backed securitization deals, most of which were either cross-border or offshore issues.

In late 2005, the jointly-issued Administrative Rules for the Pilot Securitization of Credit Assets by the People’s Bank of China (PBC) and the China Banking Regulatory Commission (CBRC) enabled asset securitization companies to take over non-performing assets from banks and public financial institutions. The two landmark pilot transactions launched at the end of 2005 were broadly classified as a Collateralized Loan Obligation and a Mortgage-Backed security issuance.

Not technically considered a securitization activity, the Specified Asset Management Plan (SAMP) was introduced to the PRC market in 2005 under an interim rule constituted by CSRC. Under this scheme, a securities firm establishes a SAMP to raise funds from investors and invests the proceeds in a specific, mostly corporate, asset. The SAMP structure accomplishes the same goal as a securitization, where cash flows from the asset will be the only source of collateral for repayment of principal and interest to investors.

Benchmarks

The People's Republic of China (PRC) has held several USD-denominated bond issues of various maturities and amounts. The USD1 billion issue due in 2013 with a 4.75% coupon is currently used as the benchmark. The Fitch Rating site provides a link for the PRC’s sovereign issues ratings.

The 7-year Treasury bond issued by MOF is used as a benchmark in the PRC's long-term local currency (LCY) market. In 2004, MOF introduced two new benchmark short-term T-bonds: the 2-year and 5-year bonds.

The China Government Securities Depository Trust & Clearing Co. (CDC) website, which is linked below, provides a chart on the current government bond yield curve based on the interbank bond market.