State Council poised to dial up regulation of corporate defaults

By Wang Yanhang Source: Global Times Published: 2020/11/24 15:03:34

Photo: VCG

The 43rd meeting of the State Council Financial Stability and Development Committee was held on Saturday, according to a report published by, the official website of the Chinese government. The meeting has sent a clear signal: the country will dial up regulation of the corporate bond market in order to safeguard the stability of the money market.

China has the second largest bond market in the world, estimated at a gross value of 115 trillion yuan ($17.52 trillion), but lately, the number of corporate debt default cases has been rising. 

It is the effective handling of these defaults that will determine the health of the market: If "runaway" corporate debts are allowed to gather pace and get out of control, the financial market and even the general monetary environment will deteriorate and possibly accelerate financial system risks - and so the State Council meeting is timely and imperative.

The main message coming out of Saturday's meeting is that defaulting companies in the bonds market must make the right choice and do their best to pay off their debts.

Essentially, runaway debts will pose a bigger challenge to the financial market. All societal forces should be motivated to strangle the trend, so as to secure the integrity of society as a whole.

Some important methods for the prevention and control of financial market hazards were outlined at the State Council meeting, and can be considered highly significant in preventing and controlling financial risks in the coming months.

The meeting called for the adoption of a zero-tolerance approach, with the committee stating that it would punish all kinds of "debt evasion" to protect investors. It also promised to investigate "fraudulent issuance, disclosure of false information, malicious transfer of assets and misappropriation of funds."

The meeting pointed out that all industries should strengthen self-regulation and strengthen market restriction mechanism. Market bodies including debt issuing companies, their shareholders, financial institutions and agencies should strictly adhere to relevant laws and regulations and try to eradicate any moral hazards.

The meeting required departmental cooperation in order to ensure effective mechanisms to discover any issues, sound the alarm, prevent and deal with such companies, and enhanced risk screening and maintaining a reasonable level of liquidity to prevent systemic financial risks.

Runaway debts do not happen in a vacuum, thriving as a result of their supporters, cooperators, and endorsers. In order to punish runaway debts, attitude and determination is pivotal - it's crucial to take a zero-tolerance approach and ask the defaulters to pay a heavy price.

There is no doubt that after this meeting, China's efforts to punish debt evasion will only be strengthened, not weakened. No single violating enterprise, or any local government, should be let off.

The author is a senior fellow with the Chongyang Institute for Financial Studies at Renmin University of China and former deputy secretary-general of the China Banking Association.


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