Cabinet needed to end China bond deadlock-official

Regulatory logjams that are blocking the development of China's corporate bond market will be overcome only with top-level political intervention, a senior official said on Sunday.

China wants to boost bond issuance so that companies rely less on bank financing.

But two major structural problems are holding back the market: banks are not allowed to buy bonds traded on the stock exchange, while insurers are not allowed to buy bonds unless they are guaranteed by banks -- yet the bank regulator has forbidden banks from issuing such guarantees.

"We need to look at things from the perspective of developing the capital markets and discard our respective departmental interests," Ouyang Zehua, deputy director of market supervision at the China Securities Regulatory Commission, said.

The CSRC took over supervisory responsibility for bond issues by listed companies last August from the National Development and Reform Commission, which retains oversight of bonds issued by non-listed enterprises.

Ouyang said the State Council, China's cabinet, would have to resolve the disputes before the market can flourish.

"It can happen in a second or it can take several years. It's a policy issue. There are no technical obstacles," he told reporters during the annual session of the National People's Congress, China's legislature.

Because of the policy blockages, only three firms have come to market since the CSRC took charge, issuing a total of 11.2 billion yuan ($1.6 billion) worth of bonds.

Turning to equities, Ouyang predicted increased volatility because the stock market was still immature compared with U.S. and European bourses yet daily turnover was now very large.

But he said strong earnings would support the market despite clouds cast by the global credit crisis and the after-effects of recent fierce winter weather in China.

"Personally, I am optimistic about the market this year," he said.

He said the CSRC had not yet received a capital-raising proposal from Ping An Insurance (Group) Co, whose shareholders last Wednesday approved an offer of new shares and bonds that could raise about $17 billion.

Speculation is rife in the markets that Ping An will scale back the offer, or delay it, in order to win approval from the securities regulator, which is concerned about the market's capacity to digest what would be one of the world's biggest corporate fund-raisings.