China's bond market flourished in 2012 despite a slowing economy and is expected to remain bullish into the new year, a development which analysts say showcases the increasingly important role of bond issuances in the country's capital market as well as Chinese companies' decreased reliance on bank credit.
Corporate bonds performed particularly well last year. Corporations in China issued 647.43 billion yuan ($103.92 billion) in new debt securities, up a 160 percent compared to 2011, according to data from chinabond.com.cn.
China's corporate bond market still has room for growth, experts say. Guo Shuqing, chairman of the China Securities Regulatory Commission (CSRC), told the People's Daily in March 2012 that the country's bond market "seriously" lags behind relative to demand in the real economy and needs further development.
Guo has introduced several measures to give corporate bonds a bigger role in boosting growth and diverting banks' credit risk. For example, his plan for a new junk bond market in June allowed non-listed small- and medium-sized businesses to place debt without government approval.
Analysts said corporate bonds appeal to Chinese investors as they are relatively stable and offer higher yields compared to investments in the stock or property markets. Chinese stock markets were among the worst performing in the world in 2012, and the central government has given no indication that it plans to loosen curbs on the country's housing market in the near future.
But despite brisk growth, the mainland bond market is still relatively immature, as a handful of recent incidents - such as the Shandong Helon incident - have made apparent. Even though Shandong Helon had a poor financial record, the company avoided defaulting on a 400 million yuan debt after local officials in Weifang, Shandong Province, stepped in to repay investors in April. This case was one of the few credit risk incidents seen last year and was widely criticized within the securities industry.
Many market watchers say investors are not vigilant enough when it comes to credit risk in the bond market and warn that defaults may be a possibility in the future. There have been no bond defaults in China so far, although analysts say defaults can in fact make the market more mature.
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