ABSTRACT
Starting with Town and Village Enterprises in the early 1980s, the small and medium private firms (PF) have continuously made a significant contribution to the fast growing Chinese economy. However, where financing sources is concerned, they have been exposed to a much inferior situation compared with their counterpart-the state owned enterprises. The traditional channel of bank lending has always been biased towards central or provincial government owned firms. The entry barriers for PF to enter into either the latedeveloped equity markets or long term bond markets have now become too high for them to be accepted. How to ease the bottleneck is considered to be a challenge to the central government; 17 May 2005 saw the launch of short term corporate bonds or commercial papers (CP). Unlike the long term corporate bond, the issuing of CP requires no bank guarantee which transform the default risk from a firm to a bank, consequently the credit rating of long term bonds are the same, one can hardly tell different default risk simply from credit rating; neither does the issuing of CP require the official approval of National Development and Reform Committee which basically filter out the non-state firms.
