Chinese Central Bank to Further Improve Bond Default Handling Mechanisms Following 2018 Trials


The People’s Bank of China (PBOC) has unveiled new measures to improve the handling of bond defaults.

PBOC released the “Public Announcement Concerning Undertaking Transfer Operations for Matured Bond Defaults (Draft for Solicitation of Opinions)” (关于开展到期违约债券转让业务的公告(征求意见稿)) on 28 June for public feedback.

A PBOC official said that in recent years China’s bond market had gradually overcome the problem of guaranteed payments, with market participants in increasing need of transfer options for bond defaults and corresponding formal mechanisms.

Starting from the second half of 2018 PBOC had undertaken trials of mature bond default transfer operations on the interbank bond market to explore such disposal mechanisms.

According to the official the trials had proved a success with all transactions successfully completed, laying a firm foundation for mature bond default transfer operations in other parts of the market.

The new “Public Announcement” has been drafted on the basis of last year’s trials, providing systemic arrangements with regards to transfer and settlement, information disclosure requirements, risk prevention mechanisms and intermediary duties.

“Driving the establishment of mature bond default transfer mechanisms is of benefit to guiding the participation of diverse entities such as specialist asset disposal entities; raising the disposal efficiency for bond defaults, expediting effective clearance by the market, and is also of benefit to the formation of a closed transaction chain and further improving the transaction circulation system of the interbank bond market.”