China's corporate bond market, which has struggled compared with stocks and treasury bonds, is expected to get a lift as regulators finish soliciting opinions on a draft regulation of its issuance.

Corporate bonds are rare in China, as only a handful of large State-owned enterprises get approval from the National Development and Reform Commission (NDRC) to issue such bonds.

The price and the amount of bonds to be issued are decided by the commission, and the commission also requires the state commercial banks to underwrite the bonds.

In this case, the country, not the companies, bear the risks, and such bonds should be more appropriately called "enterprise bonds" as opposed to real corporate bonds made with companies bearing the risks in developed countries.

Just 283.1 billion yuan of corporate bonds were issued by the end of last year, accounting for only 1.35 percent of GDP, far lower than the 40 percent in the United States and 17 percent in the Republic of Korea.

The draft regulation is seen as a landmark move towards the take-off of corporate bonds to allow more Chinese companies access to bond issuance in a bid to boost direct financing of domestic companies.

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According to the draft, the China Securities Regulatory Commission (CSRC) will be charged with supervision of corporate bonds, while the NDRC remains in control of "enterprise bonds" issued by state-owned enterprises.

The CSRC will be able to approve the issuance of bonds with maturity times of longer than a year by Chinese listed companies.

The draft says companies listed overseas as well as on the Shanghai and Shenzhen exchanges will be able to issue such bonds.

The CSRC will not approve every issue on an individual basis, but laid out clear criteria for bond issues in the draft rule.

It said the the prices and interest rates would be set by the market and require bonds to be backed by the assets of the issuing company. A company's total outstanding corporate bonds are capped at 40 percent of its net assets.

Analysts said the commission would first encourage companies with net assets of one billion to 1.5 billion yuan or more to issue the bonds without bank guarantees.

The rule also said the corporate bonds would be registered with the China Securities Depository and Clearing Co. Ltd. to open the trading of corporate bonds at stock exchanges, instead of the inter-bank market.

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