The China Venture

financial authorities and the protectionism of local government and banks. Altogether, looking
at the inefficient use of financial and human resources, the interbank market would highly
benefit from further reforms not only in the financial system as a whole but also in the way
this market is managed and organised. 52
2.3.2.5 Short term debt securities market
Debt securities with short maturities have only recently been issued in China. The main
obstacle against short term securities has been the inefficient and slow primary markets.
Shorter maturities have gradually been introduced as part of a seemingly concentrated effort
to develop China’s money markets and replace direct with indirect monetary policy
instruments.
The market for short term debt instruments can roughly be divided into a government bills
market, where securities are issued in three different maturities by the MOF and are traded on
the secondary market, and the market for commercial papers, bankers acceptances and
certificates of deposites not issued by the MOF. The latter is negligible because of a slow
underwriting. Since these instruments compete with the government instruments of the first
mentioned market, they are not actively promoted and the eligibility requirements are hard.
Further, secondary markets do not exist, and the lack of a legal and regulatory framework, as
well as market transparency has discouraged issues.
2.3.3 Instruments of financial management
With the business licence issued by the State ICAB, any foreign-invested enterprise can open
both bank accounts of foreign exchange and RMB at any bank or at any other financial
institution which is permitted to handle foreign exchange business by the State Foreign
Exchange Administration Department. According to the needs of business, a foreign-invested
enterprise can also apply for a loan of either foreign exchange or RMB from any bank inside
China which runs the business of foreign exchange. The interest rate upon loans is
promulgated by the PBOC.
Debt or equity - a number of financing options are available to foreign investors wishing to
start up a joint venture or wholly foreign-owned enterprise in China, as well as to foreign
investors with existing interests in ventures in China wishing to make additional investments.
52 For further information see Xia, 1995 and Girardin, 1997, pp. 77.
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