SCIO briefing on maintaining financial market stability during COVID-19 epidemic
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E-mail SCIO, March 25, 2020
Economic Herald:
Since the outbreak of the novel coronavirus, risks in China's bond market have emerged. What measures has the central bank taken to counter the risks? What are the effects and what is the future plan?
Chen Yulu:
The bond market is the core constituent part of the mechanism for direct financing in China. So, the stability of the bond market is very important. Currently, the outbreak of the epidemic doesn't directly cause an increase in the default rate on the bond market, and the volatility of the global financial market isn't having a tremendous fluctuation effect on China's bond market. Overall, the bond market in China is stable.
Statistics showed that defaults in the bond market have maintained a normal range since February. The number of companies that defaulted for the first time dropped significantly year-on-year.
In response to the outbreak of the epidemic, the People's Bank of China instructed the National Association of Financial Market Institutional Investors to take action from three aspects and made notable progress. The first is to be fast. It set up a "green channel" for bond registration and issuance, and provides expedited services in bond issuance, particularly to companies severely affected by the epidemic, so as to defuse possible risks of liquidity. In February, the value of bonds issued by enterprises totaled RMB 750 billion, a more than two-fold increase compared to that of the same period last year. The second is to make it convenient. To facilitate bond issuing by companies, it extended the term of validity of bond registration, and reduced or exempted charges on bond registration, trading and custody. The third is to forestall risks, i.e. take various measures to forestall possible default risks. Sticking to market principles and law-based practices, it renewed and swapped some bonds as requested by enterprises as a way to defuse default risks. Since February, roughly RMB 5.1 billion in bonds have been disposed of in various ways on the interbank market.
With these measures, the bond market as a mechanism for direct financing has played an effective role during this special period. The market is stable on the whole. Next, we will keep watching industries and companies hard hit by the epidemic, including the traditional service sector, labor-intensive manufacturing sector, transportation sector and core companies along the industrial chains. We will continue improving the mechanism to dispose of bond defaults and maintain stability of the bond market. At the same time, we will provide stronger direct financing support to the epidemic's containment and control work and the resumption of production. Thank you!
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