China’s Capital Markets
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China’s Capital Markets

Challenges from WTO Membership

Edited by Kam C. Chan, Hung-Gay Fung and Qingfeng ‘Wilson’ Liu

China’s economy has been growing rapidly since the late 1970s and is expected to maintain this momentum in the foreseeable future. Coupled with the biggest population in the world, there is tremendous growth potential for China’s capital markets and financial services industry, both vital to the continued development of the economy. The contributors present research on all facets of China’s markets including: stock and bond markets; futures and over-the-counter markets; regulatory issues; and the development and roles of financial institutions such as brokerage firms, banks and insurance companies. Also addressed are the recent performance of equity markets, the emergence of small and medium enterprises, and the state banks’ bids to be listed in overseas stock exchanges. Taken together, the book sheds a welcome light on China’s overall economic growth.
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Chapter 2: Bond Markets: Introduction and Analysis

Hung-gay Fung, Ying Han and Qingfeng ‘Wilson’ Liu


Hung-gay Fung, Ying Han and Qingfeng ‘Wilson’ Liu INTRODUCTION The Chinese bond market differs substantially from other bond markets across the world, particularly the US market. The Chinese bond market is fragmented and complicated because of different regulations governing the operations of the bond issues. The Chinese bond market is made up of Government or Treasury bonds (T-bonds), financial institutional bonds (F-bonds), enterprise bonds (E-bonds), and other bond issues such as foreign bonds (Zhang and Ji 2001). China’s T-bond market has been the important financial asset in its overall financial market (including stock market and futures market) in general in terms of size and the general bond market in particular. The Chinese bonds are traded in three different markets. That is, they are traded on the exchanges (Shanghai Stock Exchange and Shenzhen Stock Exchange), in the interbank market, and in the bank-counter market. The interbank market has the largest trading volume among the three markets, and it is the most actively traded market. Table 2.1 shows some interesting characteristics of China’s bonds. Panel A of Table 2.1 lists the amount issued for the most important types of Chinese bonds in 2004 and 2005. In 2004, more than half of the bonds issued were central bank bonds (54.6 percent), followed by the T-bonds (25.1 percent), F-bonds (18.4 percent), and E-bonds (1.9 percent). In 2005, the government bond (T-bond) accounted for 16 percent of the total bond market, while the Central Bank bond accounted for about 62.3 percent of...

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