Problems in the legal system for the administration of corporate bonds

In the capital market field, there has been a steady stream of cases involving corporate bonds, reflecting the fact that problems exist in the legal system governing the administration of corporate bonds in China. There are areas worth discussing in all of the legal systems that govern the administration of the issuance, trading and issuers of, investors in, and the coupon rates on, corporate bonds.

Administering the issuance

In terms of the authorities responsible for administration, one sees multi-institutional oversight that is in need of co-ordination with respect to regulatory policies. For the administration of corporate bonds, the total scale of corporate bond offerings nationwide each year, and the various targets within that total scale, are drafted by the National Development and Reform Commission (NDRC) in concert with the People’s Bank of China (PBOC), the Ministry of Finance, and the China Securities Regulatory Commission (CSRC). After approval by the State Council, they are issued to the relevant authorities of the governments of the provinces, autonomous regions, municipalities directly under the central government, and municipalities with independent development plans and of the State Council, for implementation.

The NDRC approves limits and controls the total scale. This multi-organisational administration situation results in a complex corporate bond offering procedure, approval procedures with lots of red tape, and less than optimal bond offering efficiency that affects corporate bond offering timetables and fragments the corporate bond market, easily resulting in blind spots and loopholes in oversight.

Li Yunhai is a partner and the director of finance practice at Zhonglun W&D Law Firm