Skip to main content

Research Repository

Advanced Search

Fact or fiction: Implicit government guarantees in China's corporate bond market

Walker, Thomas; Zhang, Xueying; Zhang, Aoran; Wang, Yulin

Fact or fiction: Implicit government guarantees in China's corporate bond market Thumbnail


Authors

Thomas Walker

Xueying Zhang

Aoran Zhang

Yulin Wang



Abstract

This paper explores how implicit government guarantees affect the yield spreads of Chinese corporate bonds. We argue that quasi-municipal corporate bonds ("Chengtou" bonds), issued by local government financing vehicles (LGFVs), carry an implicit government guarantee and therefore enjoy a reduced yield spread. Using a sample of publicly traded corporate bonds between 2010 and 2017, we show that bond investors are significantly less sensitive to bond-specific risks for corporate bonds with an implicit government guarantee: the yield spreads of Chengtou bonds are significantly lower than those of corporate bonds issued by privately-owned enterprises (POEs). Furthermore, we find that policy changes introduced by China's central government, which were intended to regulate local governments' debt financing activities, significantly reduced the gap in yield spreads between Chengtou bonds and bonds issued by POEs. Overall, our results suggest that implicit government guarantees play a crucial role in China's nascent corporate bond market, but that the country's recent policy changes have reduced the effectiveness of such guarantees, making China's corporate bond market more market-oriented.

Citation

Walker, T., Zhang, X., Zhang, A., & Wang, Y. (2021). Fact or fiction: Implicit government guarantees in China's corporate bond market. Journal of International Money and Finance, 116, Article 102414. https://doi.org/10.1016/j.jimonfin.2021.102414

Journal Article Type Article
Acceptance Date May 2, 2021
Online Publication Date May 2, 2021
Publication Date 2021-09
Deposit Date May 25, 2021
Publicly Available Date Mar 28, 2024
Journal Journal of International Money and Finance
Print ISSN 0261-5606
Publisher Elsevier
Peer Reviewed Peer Reviewed
Volume 116
Article Number 102414
DOI https://doi.org/10.1016/j.jimonfin.2021.102414
Keywords China; Corporate Bonds; Emerging Markets; Implicit Government Guarantees
Public URL https://nottingham-repository.worktribe.com/output/5571742
Publisher URL https://www.sciencedirect.com/science/article/abs/pii/S0261560621000656?via%3Dihub

Files




You might also like



Downloadable Citations