Government Bond Market Development in Asia
Li-Yen Paul Hsueh
In the aftermath of Asian nancial crisis, bearish equity marketsmade it di¹cult for rms to raise equity funds, tight credit control lim-ited the availability of business loans, and a depreciated local currencyincreased the cost of o¬shore borrowing.The domestic bond market thus came increasingly to be seen as animportant alternative source of fund-raising for the private and publicsectors in Taipei,China.As in other Asian countries, the development of a domestic bondmarket in Taipei,China is only a recent phenomenon. or a long time,the stock market had played a dominant role in the nancial market,and commercial loans were the main source of funds for businesses be-sides equity. Direct nancing was rare, and liquidity in the secondarydebt market was low.The Government of Taipei,China began issuing treasury securitiesmore than 50 years ago. The bond market never developed in any mean-ingful way until a decade ago, however, when the Government switchedits scal policy to focus more on infrastructure developments, relyingmore on debt issuance as a funding source. The outstanding volume of government bonds before 1990 was less than New Taiwan (NT) $200billion, but had reached nearly NT$1.2 trillion (US$38 billion) by theend of 1999.As a percentage of gross domestic product (GDP), the amount of government bonds outstanding in Taipei,China is relatively low, cur-rently around 14 percent, compared with 60 percent in the US, 110percent in Japan, 97 percent in Singapore, and 30 percent in Hong Kong,China. This suggests that the government bond market still has plentyof room for further development. However, current budgetary laws put acap on the maximum size of government borrowing and total amount of debt outstanding.