Public conference for China’s securities industry participants in the morning of 8 Dec 2011, which marked the 30th anniversary of the opening of the Chinese capital market, the 15th anniversary of the creation of CCDC(China Central depository and Clearing Co., Ltd.), and the 13th anniversary of the commencement of CCDC’s depository function.

Session 1: Challenges and Issues in Opening Up Bond Markets after the Recent Global Financial Crisis

Prof. Shigehito Inukai, Waseda University, Tokyo, Japan, “Japanese market status quo, recent market development and related issues for the future after the crisis”

Prof. Inukai started his presentation with illustration on the impact of the 2007-2008 Global Financial Crisis (GFC) by comparing write-downs and capital raisings between America, Europe and Asia. Asian region experienced limited impact than in the more developed regions; in particular, asset write-downs had remained at a level even below the amount of new capital raised.

According to his esteemed Prof. Uemura at Waseda University, the proposed enhancements to supervisory and regulatory systems in response to the GFC may not be sufficient; instead, corporate law and capital market law should be strengthened to provide further safeguards against market excesses. The alternative would be a recurrence of harmful effects, specifically on the economies and people in developing nations.

Prof. Inukai then gave an overview of the current Japanese bond market situation. Interest rates remained low. Japanese Government Bonds continued to dominate issuance, debt outstanding and trading volume, while corporate bond issuance remained at previous levels.
Non-Japanese sovereign bond issuance has been gradually increasing.

One of the most significant trends could be found in the strong reduction of debt issued by banks in recent years, in favor of an increase in plain bank deposits and the paying down of bank loans.

Relating the vision behind the recent developments of the Japanese bond market, Prof. Inukai cited the needs to be more competitive internationally, to reduce cost and improve ease of use of market functions, and to increase the financing options available to companies in need of funds.

He pointed to the introduction of FIEA (Financial Instruments and Exchange Act) in 2008 as a defining measure for the creation of a market only for professional investors, and argued this ‘exchange-regulated’ market would fulfill the premise of a suitable legal framework for a market exempt from full disclosure rules.

He then compared the more fragmented Eurobond issuance landscape with Japan, distinguishing between a shelf-registration system for all investors, including retail, as well as the recently established TOKYO PRO-BOND Market for professional investors only.

Prof. Inukai referred to the implication of a Pan-Asian professional bond market, using a diagram from his theory formulated in 2010, with Dr. Suk Hyun. One of the key factors in establishing a conducive legal framework for a professional market can be traced back to the legal tradition of the countries in question.

While Japan comes from a civil law concept and now favors comparative legal studies, a number of major developed markets have been basing their approach on the common law tradition originating from England.

Prof Inukai opined that for the development of a Pan-Asian bond market, it was important to consider the culture and traditions in Asia while taking advantage of the high savings rate mentioned.