China's Corporate Bond Market Development

A review of recent developments in the Chinese bond market shows that China's private debt market, an important source of financing to foster economic growth, remains relatively small despite recent reforms. Investors at an information disadvantage demand a risk premium to lend money (i.e., buy bonds) and may ultimately refuse to do so (i.e., ration credit). Possible regulatory reforms to mitigate this information lacuna include suitable bankruptcy and insolvency rules, securities laws, rules governing credit-rating agencies, and market measures (e.g., appropriately regulated credit-derivative market and/or event-risk provisions in bond indentures).