Since China initiated reforms and opening up in 1978, the government has been continuously improving the nation's financial structure and creating a number of financial products.

But the country's financing system, which relies heavily on indirect financing or bank loans, continues to play a leading role, the central bank official said.

The government will have to give key attention to the development of the bond market, he said.

During the first half of this year, the Ministry of Finance issued treasury bonds worth over 314 billion yuan (US$37.8 billion), an increase of 20.8 percent compared with the same period of last year.

Relevant departments also issued policy financial bonds worth 138 billion yuan (US$16.6 billion) during the period, a year-on-year increase of 30.8 percent.

Companies issued 6.5 billion yuan (US$783 million) worth of corporate bonds during the period, a drop of 13.3 percent.

Zhang Liqun, a senior researcher with the State Council's Development Research Center, said China's bond market is lagging behind developed countries in terms of supply.

By the end of last year, the outstanding amount of the bonds, including treasury bonds, policy financial bonds and corporate bonds, accounted for 34.22 percent of the year's gross domestic product.

The ratio was about 100 percent in developed countries, he said.

The structure of the bond market was also irrational, Zhang said.

Treasury bonds and policy financial bonds accounted for a majority part of the market, while corporate bonds accounted for quite a small proportion, he said.

Dong Chen, a senior analyst with China Securities, said the government should better design the bond mix, since the market lacks short-term bonds (no more than one year).

"The long-term bonds can help avoid the peak time of repaying the debt, but short-term bonds are beneficial to increasing liquidity of the bond market," he said.

A central bank official said the future goal for development of the bond market is to establish a united market for all financial institutions, companies and individual investors.

Presently, bond markets consist of inter-bank, exchange and commercial bank counter bond markets.

The supply for markets will also be increased, the official said.

"Commercial banks will be allowed to issue financial bonds, while more companies will be allowed to issue corporate bonds," he said.

He added that the market conditions will be improved, and the fluidity in the secondary bond market will be increased, the official said.

(China Daily August 11, 2003)