China corporate bond market prediction
When China released its 12th Five-Year Plan in March 2011, one sentence raised more than a few eyebrows: “Government at all levels should create a sound policy, system and legal environment, break down market segmentation and industry monopoly, stimulate initiative and creativity of market players, steer the behavior of market players towards national strategic objectives.”
China’s “industry monopolies, ” lest we forget, are state-owned enterprises. Why on earth would the government want to break them up?
The answer lies in some of the plan’s broader goals, like boosting consumption and enabling the service sector to be a larger driver of economic growth. Success on that front likely requires a robust private sector, abounding with competitive small businesses — something China’s struggled to foster.
Small firms can’t thrive without cheap, easy access to credit, but the large state-run banks — which dominate China’s banking system –aren’t keen to lend to them. They prefer transacting with state-run companies, which are a far less risky investment, thanks to their implicit government guarantee.
Untapped Economic Potential
Hence, many small-business owners and entrepreneurs are forced to seek financing in the shadow banking system, where high borrowing costs and unscrupulous tactics reign. Some companies do all right, securing expensive loans and running a productive operation, albeit with slimmer margins and lower growth potential than they’d otherwise have — and the constant threat of loan sharks. But many firms aren’t so lucky, and many more likely don’t even try. Thus, there’s a ton of untapped economic potential.
Policymakers have tried to fix this. Last October, Premier Wen Jiabao directed banks to increase and broaden small businesses’ credit access, scrap unreasonable charges and waive stamp taxes on small-business loans, and — for good measure — eased small firms’ value-added tax burden. But none of these measures were concrete, and banks largely continued shutting out small firms.
A longer-term solution took shape in March, when officials approved a plan to deregulate the financial industry in the coastal city of Wenzhou. Citizens can set up banks, invest abroad, trade unlisted equities and develop different types of bonds. Officials’ goal is to fully legitimize the shadow banking system and wipe out the darker practices in its underbelly.
If it works as intended, the market’s invisible hand would bless the lenders who run an ethical, useful institution and wipe out the loan sharks: If lending is free and easy, miscreants become redundant.
The Wenzhou reforms are a blueprint for nationwide financial deregulation, but it could take years for officials to gauge their viability, so this isn’t a near-term solution for credit-starved small enterprises. Thus, officials are taking unprecedented steps to revolutionize banking in the here and now.
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How do you find the market value of a corporate bond?
The best way is to find a value a similar bond