Corporate bond performance in China and its default spread
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.