Xie Ping talks about the default of state-owned enterprise credit bonds: Behind it involves the logic of debt constraints, property rights chains and cadre management

Economic Observation Network reporter Hu Yanming "The default of state-owned enterprises in a certain place actually implies the limited financial resources of the local government, because local governments are multi-target constraints, such as maintaining stability, giving priority to employment, GDP, fiscal revenue, poverty alleviation, environmental protection, and so on... The default of the credit debt of state-owned enterprises is not simply a problem of an enterprise, but also involves debt constraints and property rights chains, and the logic of cadre management. At the 2020 Beijing International Financial Security Forum held in the Beijing Financial Security Industrial Park on November 27, Xie Ping, president of the Beijing Fintech Research Institute, said in his speech about the default of credit bonds.

Xie Ping explained that state-owned enterprises are different from private enterprises, for example, a certain enterprise is a legal person, a limited company, or a joint-stock company, but its superior may be a group, the group may be a wholly-owned enterprise of the SASAC, the provincial SASAC is a contributor to state-owned assets, and the chairman and party secretary of the provincial SASAC are appointed by the provincial government. Therefore, the set of institutional arrangements behind the default of state-owned enterprises is not only the constraint of market discipline, not only the constraint of debt, its property rights chain, the final right to dispose of state-owned assets, the owner, including the management of the ultimate leading cadres, these things are all mixed together, is a kind of institutional arrangement with Chinese characteristics. This thing has defaulted on the bond market, so this time the Financial Stability Board also said that local governments also have to bear certain responsibilities.

"The same problem, for example, a certain enterprise defaults, the government does not care, it does make sense, the market discipline in the Company Law is like this, it is limited liability, he bears his own debts, the law is like this." Another province said, I guarantee that the state-owned enterprises in our province will not default. Xie Ping believes that the two provinces are not the same, which shows that the property rights chain and cadre management logic behind this are different from the general pure market constraints.

At the same time, Xie Ping believes that the default of state-owned enterprises in a certain place actually implies the limited financial resources of the local government, because local governments are multi-target constraints, such as maintaining stability, giving priority to employment, GDP, fiscal revenue, poverty alleviation, environmental protection, etc. Among this series of target constraints, money must be able to cover these goals. Therefore, debt and financing actually assume some of these functions. When there is not enough money to cover these target constraints at the same time, he may choose the default of individual enterprises to ensure the completion of other goals. Therefore, we should see that this kind of state-owned enterprise in our country, although the problem is in the debt default of a state-owned enterprise, actually reflects the financial difficulties of a local government. In turn, this question can also be seen that under the current market economic system in our country, the relationship between the government and the market boundary is more complicated than we think, and it is not a simple and complete constraint of market discipline.

For intermediaries in the bond market, Xie Ping said that in the bond market, these intermediaries, underwriters, ratings, accounting firms, law firms, when state-owned enterprises default, found that these intermediaries did not perform enough. For example, for a defaulting enterprise, the rating is 3A, the accountants and lawyers are unqualified opinions, and the underwriters underwrite for him. It can be seen that all the intermediaries of state-owned enterprises still believe that he will not default in advance, so the rating of him is also high, and the opinions given by law firms, accounting firms and underwriters are all good opinions.

"I remember that in July this year, the SECURITIES Regulatory Commission issued a document, after the company's bond issuance rating is no longer a necessary condition, the issuance of bonds can be rated, can not be rated, the original bond must be rated by the company, this is the reform, they also think that these rating agencies are unreliable." Xie Ping believes that this reflects many intermediaries in our country's bond market at present, and in terms of economic theory, there are still some shortcomings in the financial infrastructure.

Xie Ping believes that the bond issuance interest rate does not show the probability of possible default in the future, the issuance interest rate is very low, and all are rushed, the underwriters are taking underwriting, or financing, and even give other preferential conditions to grab the business, grab the business, and send it.

"In the current theory of market effectiveness, we can see that the bond issuance interest rate of our bonds, state-owned enterprise credit bonds, itself does not have sufficient information on the probability of default, and as a result, it defaults afterwards, and everyone is stupid." The secondary market price is also not reflected, all the prices are stable, suddenly there is a default, suddenly fell 50-60%, completely panicked. Xie Ping believes that the problem reflected in this is that our issuance rate and the secondary market price of bonds, from the perspective of methods and laws, some basic principles of finance, are not efficient in finding risks, which shows that the efficiency of our market is not enough. Neither the bond issuance rate nor the secondary market price of the bond reveals the possibility of risk, or the price of the secondary market cannot be exposed to the default information, the price is invalid, or the efficiency is not high, the information disclosure, and the dissemination are not enough.

"It is very strange that decades ago, the bond market price is very effective, and now the Internet technology is so developed, why the bond issuance rate and the secondary market price can not effectively reflect the risk, economic theory, financial theory, the basic principles of the financial market is not reasonable, once there is a default, it is possible to cause a large area of emotional fluctuations, fluctuations are very strong." Xie Ping said.

Finally, Xie Ping said that the supervision of the bond market should be strengthened, the default event that occurred this time, we also saw that the self-regulatory supervision of the dealers association is limited, especially the penalty is limited, this case is to take this method, self-discipline inspection, after the inspection, the case will be transferred to the CSRC, according to the unified law enforcement mechanism of the bond market established in China in 2018, this is a case solution that has attracted much attention, see how this case is solved, This proves that our long-term supervision of the bond market has not been as strict and powerful as the stock market. Because of the securities regulatory system supervision of the stock market, most of these intermediaries and bond-issuing enterprises are listed companies, and they are very afraid of the securities regulatory commission, the self-regulatory supervision of the bond market, everyone feels that it is not so hard, and there is also regulatory arbitrage behind this default. In order to prevent such problems, the State Council passed relevant regulations in 2018.

On December 3, 2018, the Chinese Minmin Bank, the China Securities Regulatory Commission and the National Development and Reform Commission jointly issued the Opinions on Issues Related to Further Strengthening the Law Enforcement of the Bond Market to strengthen the supervision and enforcement of the bond market, strengthen coordination and cooperation, and establish a unified bond market law enforcement mechanism.

Xie Ping said that the country's financial security is also a big problem, and this bond default also reveals that our country's bond market still has a lot of work to strengthen in terms of market effectiveness, infrastructure construction, and supervision.

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