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Making Markets: Reforms to Strengthen Asia's Debt Capital Markets

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Author Info

  • Paul Lejot

    (The University of Hong Kong)

  • Douglas Arner

    (The University of Hong Kong)

  • Liu Qiao

    (The University of HOng Kong)

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Abstract

Liquid markets for debt securities exist comprehensively in no East Asian economy other than Japan, even though short or medium-term bonds are issued in most and Asian borrowers are established (though generally not prolific) international issuers. Today¡¦s markets provide a borrowing medium (not always effectively) for Asian governments, financial institutions and some companies, but investor activity is closely correlated with bank credit creation. Above all, the region¡¦s markets provide no real guard against crisis or contagion, nor act as a balance to banking systems susceptible to distortion and event risk. Asia¡¦s economies may not suffer general capital shortages but poor resource allocation is pervasive and would be greatly improved by efficient national and regional financial markets. Seven years after its most profound financial crisis, Asia risks new contagion from any similar, unforeseen loss of confidence. Active debt capital markets would help limit such risks. The world¡¦s foremost bond markets developed as a result of intense national needs, and while economic growth will inevitably lead to greater bond issuance and trading this will be insufficient for the region¡¦s wider requirements without official sponsorship of active cooperative market reform. This paper contains three linked policy proposals: a matrix of steps to remove legal, fiscal, regulatory or systemic obstacles or omissions that hinder market usage; measures to encourage the development of a unified regional offshore market for local and major currency risk; and the concept of a regional body to promote the creation of asset-backed securities on a scale not previously contemplated and greatly expand activity in Asia¡¦s debt markets.

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Bibliographic Info

Paper provided by Hong Kong Institute for Monetary Research in its series Working Papers with number 132004.

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Length: 55 pages
Date of creation: Jul 2004
Date of revision:
Handle: RePEc:hkm:wpaper:132004

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  1. Ross Levine, 1997. "Financial Development and Economic Growth: Views and Agenda," Journal of Economic Literature, American Economic Association, vol. 35(2), pages 688-726, June.
  2. Thorsten Beck & Ross Levine, 2003. "Legal institutions and financial development," Policy Research Working Paper Series 3136, The World Bank.
  3. Rafael LaPorta & Florencio Lopez de-Silanes & Andrei Shleifer & Robert W. Vishny, 1997. "Legal Determinants of External Finance," Harvard Institute of Economic Research Working Papers 1788, Harvard - Institute of Economic Research.
  4. John D. Burger & Francis E. Warnock, 2006. "Foreign Participation in Local Currency Bond Markets," NBER Working Papers 12548, National Bureau of Economic Research, Inc.
  5. Allen, Franklin & Qian, Jun & Qian, Meijun, 2005. "Law, finance, and economic growth in China," Journal of Financial Economics, Elsevier, vol. 77(1), pages 57-116, July.
  6. King, Robert G. & Levine, Ross, 1993. "Finance and growth : Schumpeter might be right," Policy Research Working Paper Series 1083, The World Bank.
  7. Barry Eichengreen & Pipat Luengnaruemitchai, 2004. "Why Doesn't Asia Have Bigger Bond Markets?," NBER Working Papers 10576, National Bureau of Economic Research, Inc.
  8. Raynes, Sylvain & Rutledge, Ann, 2003. "The Analysis of Structured Securities: Precise Risk Measurement and Capital Allocation," OUP Catalogue, Oxford University Press, number 9780195152739, September.
  9. Paul Lejot & Douglas Arner & Liu Qiao & Mylene Chan & Mshall Mays, 2003. "Asia's Debt Capital Markets: Appraisal and Agenda for Policy Reform," Working Papers 192003, Hong Kong Institute for Monetary Research.
  10. M S Mohanty, 2002. "Improving liquidity in government bond markets: what can be done?," BIS Papers chapters, in: Bank for International Settlements (ed.), The development of bond markets in emerging economies, volume 11, pages 49-80 Bank for International Settlements.
  11. João A. C. Santos & Kostas Tsatsaronis, 2003. "The cost of barriers to entry: evidence from the market for corporate euro bond underwriting," BIS Working Papers 134, Bank for International Settlements.
  12. Leslie Teo & Charles Enoch & Carl-Johan Lindgren & Tomás J. T. Baliño & Anne Marie Gulde & Marc Quintyn, 2000. "Financial Sector Crisis and Restructuring," IMF Occasional Papers 188, International Monetary Fund.
  13. Robert N McCauley, 2003. "Unifying government bond markets in East Asia," BIS Quarterly Review, Bank for International Settlements, December.
  14. King, Robert G. & Levine, Ross, 1993. "Finance and growth : Schumpeter might be right," Policy Research Working Paper Series 1083, The World Bank.
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Cited by:
  1. Schou-Zibell, Lotte & Wells, Stephen, 2008. "India's Bond Market-Developments and Challenges Ahead," Working Papers on Regional Economic Integration 22, Asian Development Bank.

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