By Wang Lan (China Daily)
Updated: 2007-12-03 10:46

As bull stock market stumbles and banking regulators continue to tighten the screws through higher interest rates and rising capital reserve ratios, companies are searching for new ways to find funds to fuel further growth.

Never easy, acquiring expansion capital for small- or medium-sized companies has become an even greater challenge, so business leaders are looking to another source long used in mature capital markets - corporate bonds.

Economists say they expect the corporate bond market will become a major source of financing for many thousands of Chinese companies that up to now have relied mostly on bank borrowing or retained earnings to fund growth.

"The government is keen to foster more direct financing from the capital market because of its many advantages to corporations," says Shen Minggao, senior economist of Citigroup in China.

Nie Wen, a fixed-income securities analyst at Industrial Securities says the introduction of corporate bonds will enable companies to acquire direct financing important to sustaining corporate development.

"Corporate bonds enable companies to have a wider range of financing alternatives," says Nie.

That has not gone unnoticed by many Chinese enterprises.

"Many small- and medium-sized companies have approached us to discuss bond issuance plans," says Fang Yimiao, general manager of fixed-income department at Huatai Securities, a leading underwriter based in Nanjing.

"We believe that the size of the corporate bond market in China will, in time, surpass the combined capitalization of the stock market."

Major United States investment bank Goldman Sachs estimates that China's public and private debt markets have the scope to become a key part of the international fixed-income sector over the next decade.

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