* More than 20% of global EM debt from China
* Overseas bond issues up 19x from 2009-13
* Domestic reforms point to further growth
By Christopher Langner
SINGAPORE, May 14 (IFR) - Emerging market bond investors have more reason than ever to pay attention to China. More than one fifth of all EM bonds sold in US dollars, euros and yen this year have come from Chinese issuers, an unprecedented percentage from just one country.
China now accounts for 20.5% of worldwide EM bond issues, having printed US$47.2bn year-to-date, according to Thomson Reuters data. At the present rate of issuance, last year’s record volume of US$72.5bn will be easily surpassed.
China became the world’s biggest source of EM bonds in 2012, edging past Brazil, but that year’s tally of US$45.9bn represented just 9.5% of the global market.
The growth of Chinese issuance has been breathtaking, surging more than 19 times since 2009. Chinese issuers sold just US$3.8bn of G3 bonds in 2009, equal to less than 1.5% of the global EM total: barely five months into 2014, China has already smashed its 2012 annual total.
Signs from the mainland suggest that this is only the beginning of a growing trend. Last Friday, China’s State Council said it planned to make resource allocation in the country more efficient by promoting the use of the capital markets, according to Reuters reports.
“China’s capital markets are still not mature, and some systemic problems still exist. New problems are continually appearing,” the State Council said in a statement posted on its website late on Friday.
“We will persevere with market-based and rule of law-based orientation and uphold open, equal, and fair market order,” the statement said.
The wording suggests that global bond investors will see even more securities coming out of China as authorities continue to reform the country’s financial system.
Offshore bond buyers, however, are not the only ones that need to brace themselves for more bond issuance. Recent statistics from local clearing house Chinabond show that the country’s domestic bond market has grown 2.8% since the end of 2013, with Rmb26.6trn (US$4.28trn) outstanding at the end of April.
The latest number has put China comfortably ahead of France and Italy as the third-largest domestic bond market in the world, behind only Japan and the US.
According to recent government statistics on total social financing, the volume of corporate bonds outstanding has also grown from 10.5% of total social financing by the end of 2013 to 23.6% by the end of April.
“New corporate bond issuance increased further to Rmb366bn from Rmb252bn in March, on falling financing costs amid easier liquidity conditions,” noted Jian Chang, China economist at Barclays, in a recent research note. “Gross corporate bond issuance jumped to a record high of Rmb151bn in April from Rmb88bn in the previous month, while short (and) medium-term notes and other financial bond issuance were also robust.”
By the end of April, Chinese companies had issued over Rmb750bn in their local market, which, added to the US$47.2bn issued offshore year-to-date, brings total corporate bond issuance from the country to almost US$170bn so far this year.
The rise is consistent with China’s policy of reining in its shadow banking industry and tightening capital requirements in the banking sector.
It is no surprise, therefore, that at the same time as new heights were reached in the local - and offshore - corporate bond market, the volume of off-balance sheet debt dropped 49.45% to Rmb279bn by the end of April.
As companies increasingly turn to the capital markets and liquidity is squeezed out of the onshore trust financing and shadow banking sector, EM investors can expect even more overseas bonds to come out of China. (Reporting By Christopher Langner; editing by Steve Garton and Sudip Roy)