On December 21, 2010, the National Association of Financial Market Institutional Investors (NAFMII) published Guidelines for Super & Short-term Commercial Paper (SCP) Issued by Non-financial Enterprises in the Interbank Bond Market (Tentative), and formally started to accept registration for issuing SCP in the interbank bond market. Today, NAFMII accepted issuance registrations from three issuers, including the Ministry of Railways of the People’s Republic of China, China National Petroleum Corporation and China Petroleum & Chemical Corporation. The registered value totals RMB210 billion.

With the supervision of the People’s Bank of China (PBOC) and the concerted efforts of market participants, NAFMII has been actively implementing national macro control and adjustment policies, placing more financial support for the economy, and has made significant progress in enterprise direct financing. By December 21, 2010, the total issuance volume of Non-financial Corporate Debt Financing Vehicles that registered with NAFMII have hit RMB2123.17 billion, accounting for 55.3% of the total volume of corporate debt instruments issued by Chinese enterprises. The cumulative value of financing instruments has added up to RMB3804.85 billion, accounting for 67.9% of the total size of corporate debt instruments issued by Chinese enterprises. The rapid growth of debt capital market has further improved the functions of Chinese financial markets, promoted coordinated market development, and played an important role in supporting steady and rapid economic development and accelerating the transition process of economic development pattern.

In addition, NAFMII has organized market participants to summarize the experience in developing debt capital market for Chinese enterprises, and to research and launch SCP which is in accordance with the actual demand of enterprises in production and operation and the imperative need for developing the financial markets. This is a move to further increase the proportion of direct financing as required under the Suggestions of the Central Committee of the Communist Party of China on Formulating the Twelfth Five-year Plan for National Economic and Social Development, and strategies formulated by the Central Economic Working Conference to accelerate the transition of the economic development pattern. This is a beneficial attempt to further propel China’s financial innovation. It will carry a heavy weight to exert the role of the bond market in allocating market resources, expand the scale of enterprise direct financing, strengthen and improve macroeconomic control and maintain the steady and healthy operation of the economy.

SCP is a short-term commercial paper with maturities up to 270 days, which is issued by non-financial enterprises that have legal person status and a high credit rating in the interbank bond market. As a debt financing instrument for non-financial enterprises, the commercial paper is a money market instrument in term, and features simpler information disclosure, higher registration efficiency, more convenient issuance and more flexible fund use. After the launch, SCP is expected to play an important role in the following dimensions:

Firstly, it will help enrich the direct debt financing channel for enterprises, and enhance their liquidity management level. Currently, China’s corporate debt instruments are mostly one year or longer and enterprises’ main source of short-term financing remains bank loans. The launch of SCP will enable enterprises to have financing means with mixed maturities. Meanwhile, because of the volatility of companies’ daily funding requirements, through the issuance of SCP they can respond flexibly to unexpected demands for funds, improving capital efficiency Secondly, it will help enrich investment varieties and meet diversified demands of investors. At present, the national money market lacks instruments. In particular, the issuance volumes of corporate credit products that are available to investors are low and are quite illiquid in the secondary market. The launch of SCP provides diversified investment choices for investors, and better satisfies the investment needs of all types of investors.

Thirdly, it will help improve the sensitivity and effectiveness of monetary policy and promote interest rate liberalization. By increasing the size of debt capital market, enterprises will become more sensitive to market interest rates in production and operation activities, and thus increase the flexibility of monetary policy tools and help boost the transmission efficiency of monetary policy. In addition, the market-oriented issuing interest rate of SCP will further enrich the term structure of interest rate, risk structure and liquidity structure in the market, and conduce to forming the market-oriented yield curve covering short, medium and long terms.

Last but not least, it will help realize the objective of the macroeconomic control, and reinforce the function of the debt capital market as the transmission channel of the macroeconomic control policy. After the launch, SCP will guide funds to be invested in the real economy, to serve strategic economic restructuring and the transition of economic development pattern, to strengthen the correlation, flexibility and effectiveness of macroeconomic control, and to lay a solid foundation for the long-term objective of employing the market mechanism to regulate the economy.

Developing financial markets requires joint efforts of all market participants. NAFMII will continue to work in accordance with requirements of the PBOC in pressing ahead with the orderly innovation and standardized development of the financial markets, handling well the relationship between encouraging innovation and preventing risk, further reinforcing risk control, promoting the healthy development of debt capital market, and contributing more to the steady and fast development of the Chinese economy.