What Is a Domestic Bond?

The domestic bond market means that the bond issuer is a legal resident of the country, they issue the bond and then trade the bond in the country.

Domestic bond market

The market formed by domestic bond issuance and circulation is the domestic bond market. The domestic bond market, like the stock market, is also divided into an issuance market and a circulation market. ^[1]

(1) Enterprises owned by the whole people can issue bonds. Government organizations, institutions, collectively owned enterprises, and individual citizens may not issue bonds or entrust other departments to issue bonds on their behalf. ^[2]

(2) The total amount of corporate bonds issued shall be strictly controlled. The People's Bank of China, in conjunction with the national planning and financial departments, will draw up the annual control quota for national corporate bonds, which will reach all provinces, autonomous regions, municipalities directly under the Central Government, and provinces and cities separately listed in the plan.

(3) The People's Bank of China is the competent authority for corporate bonds and implements a centralized management and hierarchical approval system for corporate bonds. The bonds issued by an enterprise must be submitted to the People's Bank of China for examination and approval and shall not be issued without approval.

(4) Articles of association or measures shall be announced by the enterprise when issuing bonds. The issuance and purchase of corporate bonds should follow the principles of voluntary, mutually beneficial and paid. Issuance of corporate bonds by assessment is prohibited.

(5) If an enterprise issues bonds for investment in fixed assets, its investment projects must be reviewed and approved by relevant departments and included in the state-controlled fixed asset investment scale. It is strictly forbidden to issue bonds for unplanned investment in fixed assets.

(6) The coupon rate of corporate bonds shall not be higher than 40% of the bank's residential savings time deposit interest rate during the same period.

(7) Enterprises can issue bonds by themselves or entrust banks or other financial institutions to issue bonds on their behalf. The sales agency charges a certain percentage of the handling fee based on the total sales amount of the sales agency, and is not responsible for the operating status of the entrusted enterprise. Non-financial institutions or individual citizens shall not handle the sale and transfer of corporate bonds.

(8) For the purchase of bonds by enterprises under the ownership of the whole people, they can only use their own funds that the state has the authority to dispose of. Bonds can only use the funds that the state has stipulated that they can dispose of themselves. Bondholders are not responsible for the operation of the enterprise.

(9) Corporate bonds can be transferred, mortgaged, and inherited. Bond transfer business is handled by professional banks and other financial institutions with the approval of the People's Bank. Corporate bond interest income from units and individuals is subject to taxation according to state regulations.

(10) The People's Bank of China has the right to supervise and inspect the use of funds by companies that issue bonds and by companies that purchase corporate bonds.