Summary:
Work related to China's current capital market is focused on expanding its high-level institutional opening. Since the 18th National Congress of the Communist Party of China, the dual-track opening of the capital market has accelerated. The “Shanghai-Hong Kong Stock Connect,” “Shenzhen-Hong Kong Stock Connect,” and “Bond Connect” mechanisms have been successively launched and gradually optimized. However, compared with the vibrant practice of the capital market, academic research on the opening of the capital market focuses mainly on the stock market, paying less attention to the policy effects of bond market opening. The opening of the bond market is an important part of China's dual-track capital market opening, playing a significant role in promoting the internationalization of the renminbi, deepening market-oriented interest rate reform, and constructing a new open economic system. Given its considerable market size and risk spillover effects, the bond market is systemically important for the stable development of China's financial market. With the increasing opening of China's bond market to foreign investors, this paper focuses on whether foreign bondholders, as important participants in the bond market, affect the operational efficiency and corporate bond credit risk of the Chinese bond market. The launch of Bond Connect has created a favorable natural setting in which to study the impact of bond market opening on credit spreads. Based on the quarterly data of corporate bonds and medium-term notes issued by listed companies from 2014 to 2020, this paper takes the implementation of Bond Connect in July 2017 as an exogenous shock. The issuances and transactions of medium-term notes in the interbank bond market affected by the policy are treated as the experimental group, while the issuances and transactions of corporate bonds in the exchange bond market unaffected by the policy are treated as the control group. The impact of bond market opening on credit spreads is examined using a difference-in-differences model. The results show that Bond Connect has significantly reduced credit spreads for corporate bonds. The mechanism analysis indicates that Bond Connect reduces credit spreads through liquidity effects, information disclosure effects, and external supervision effects. This paper conducts a heterogeneity analysis from the perspective of bond characteristics and finds that the negative impact of Bond Connect on credit spreads is more significant in the samples with smaller bond issuance sizes, no special terms, and lower bond ratings. Further analysis reveals that Bond Connect implementation not only reduces credit spreads in the secondary market but also affects the primary market by reducing primary market spreads for corporate bonds, improving issuance efficiency, and significantly increasing the number and scale of bond issuances by companies. This paper makes several contributions to the literature. First, as an important measure of the capital market's institutional opening, Bond Connect has been running for more than 6 years since July 2017. However, the literature focusing on its impact on credit risk in the bond market remains limited. This paper systematically analyzes the impact of Bond Connect on the credit spreads of corporate bonds and its operating mechanisms, enriching the relevant literature on bond market opening and providing strong evidence of the effectiveness of Bond Connect. Second, research on credit spreads mostly focuses on macro environments, corporate governance, and bond terms. In particular, studies on the impact of capital market opening on credit spreads mainly focus on the stock market. However, the bond market and the stock market differ considerably in terms of investor structure, investment product attributes, and investment risks. The conclusions of research on overseas stock investors usually cannot be directly applied to overseas bond investors. This paper uses the Bond Connect opening policy to directly examine the impact of foreign bondholders on mainland bond market risks, to some extent enriching the research on bond market risks. Third, this paper's findings show that bond market opening can reduce the credit spreads and increase the financing scale of corporate bonds, reflecting the role of bond market opening in optimizing global resource allocation, preventing and resolving financial market risks, and promoting the high-quality development of China's capital market. The conclusions of this paper highlight the importance of bond market opening for the healthy development of micro-enterprises and even the capital market in China, providing some enlightening implications for “the new development paradigm with domestic circulation being the mainstay and the two circulations reinforcing each other.” This paper yields some important policy implications. First, it is necessary to firmly promote high-level financial opening and construct the new development paradigm. This paper links capital market opening with bond market credit risk, thus providing new microeconomic empirical evidence for the study of financial market opening and stability. It is highly important for preventing and resolving financial risks and promoting the healthy and stable development of the financial market. Second, bond market opening can improve the accuracy of pricing for bond issuers, allowing them to reduce financing costs and attract more funds into the bond market, thereby increasing the demand and activity of the securities market. This benefits both bond issuers and investors and enables the financial sector to better serve the real economy. The findings of this paper encourage further promotion of the transformation of China's bond market from factor flow-oriented opening to rule-based institutional opening to advance the reform, opening, and high-quality development of the bond market.
甄红线, 吉继平. 债券市场开放影响债券信用利差吗？——基于“债券通”的准自然实验[J]. 金融研究, 2023, 522(12): 38-55.
ZHEN Hongxian, JI Jiping. Does Bond Market Opening Affect Bond Credit Spreads？ A Quasi-Natural Experiment Using “Bond Connect”. Journal of Financial Research, 2023, 522(12): 38-55.
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