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China signals dawn of “caveat emptor” in bond market

23 May 2012

China has given the green light for the issuance of “junk bonds”, heralding an era of risk in a domestic bond market that has hitherto been designed to deliver safe financing for the country’s state-owned enterprises and institutions. The high-yield bond scheme, which is designated as a “pilot” programme, will allow small and medium-sized enterprises – which are mostly privately-owned – to issue bonds for the first time on a regular basis. We think the move marks a milestone in China’s financial reforms (CC Feb 23 Financial China) but will have limited immediate impact because of its small initial scale.

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