Historically, China's bond market has been one of the weakest parts of its financial market. In 2011, the country had issued a combined 21.9 trillion yuan ($3.42 trillion) in bonds, accounting for 47 percent of China's GDP. Meanwhile, during the same year, the total volume of the US's bond market reached $30 trillion. According to comparative studies, based on its GDP and rate of economic growth, China's bond market should be three times larger in terms of volume than it currently is. One of the major reasons why the country's bond market has failed to thrive is the strong preference Chinese companies have developed for the stock market when it comes to seeking financing. Only some 20 percent of the direct corporate financing in China comes from the bond market, although theoretically, given the low costs associated with debt issuance, this should be most companies' primary source of funding. This development has not only stifled the expansion of the bond market, it also hurts investor confidence when companies rush to get listed for the sole purpose of raising easy money. Two factors are behind the current awkward situation. Firstly, it is just too easy for companies to raise funds from the stock market. Companies are required to pay interest and principal to their debt holders if they issue bonds; however, they are under no pressure to provide returns to their stakeholders in the stock market. Under the current laws, securities authorities also have little power to compel listed companies to share their profits with stock investors either - as long as a publicly traded firm can provide a reasonable explanation for why it elects not to pay dividends, it will face no penalties or censure from regulators. Secondly, the high entry threshold and a lack of unified standards have turned many companies away from debt financing. According to the country's financial regulators, the principal of a bond cannot exceed 40 percent of a company's net assets, which severely limits the size of bonds that small companies can issue. Also, the bond market is supervised by five government bodies - the Ministry of Finance, the People's Bank of China, the China Securities Regulatory Commission, the China Banking Regulatory Commission and the National Development and Reform Commission. Each body has a different standard for bond issuance, which makes it difficult for companies to design bond products. To encourage companies to raise money through issuing bonds, the government should lower the entry requirements of the bond market and set unified standards to enhance the market's efficiency. Also, regulators should crack down on companies that exploit the stock market, by, for example, making it mandatory for companies with high profit margins or monopolistic positions to hand out dividends.

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