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

HKIMR Working Paper No. 13/2004

55 Pages Posted: 23 Aug 2007

See all articles by Paul Lejot

Paul Lejot

The University of Hong Kong - Faculty of Law

Douglas W. Arner

The University of Hong Kong - Faculty of Law

Qiao Liu

The University of Hong Kong - School of Economics and Finance; Peking University - Guanghua School of Management

Date Written: July 2004

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.

Suggested Citation

Lejot, Paul and Arner, Douglas W. and Liu, Qiao, Making Markets: Reforms to Strengthen Asia's Debt Capital Markets (July 2004). HKIMR Working Paper No. 13/2004. Available at SSRN: https://ssrn.com/abstract=1009009 or http://dx.doi.org/10.2139/ssrn.1009009

Paul Lejot (Contact Author)

The University of Hong Kong - Faculty of Law ( email )

Pokfulam Road
Hong Kong, Hong Kong
China

Douglas W. Arner

The University of Hong Kong - Faculty of Law ( email )

Pokfulam Road
Hong Kong, Hong Kong
China

HOME PAGE: http://hub.hku.hk/rp/rp01237

Qiao Liu

The University of Hong Kong - School of Economics and Finance ( email )

School of Economics and Finance
Pokfulam
Hong Kong
Hong Kong
852-2859-1059 (Phone)
852-2548-1152 (Fax)

Peking University - Guanghua School of Management ( email )

Peking University
Beijing, Beijing 100871
China

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