Annual Review of China's Bond Market (2006) .1205998401765

Annual Review of
Chinese Bond Market

(2006)
------------Annual Report of Chinese Bond Market (2006)
Bond Information Department,

China Government Securities Depository Trust & Clearing Co. Ltd
Feb. 15, 2007
Content
Macro-economy Analysis for Year 2006........................................... 5

Slowing increase of fixed assets investment, a boom in property
development investment.............................................................................................. 5
Hike in Consumers Price and Drop in Producers Price.............................
Money Supply: Adequate Aggregate Amount & Excess Liquidity........... 8
Bond Market Trend Analysis........................................................ 10

Analysis on Price & Interest Rates Movement of Chinese Bond Market
10
1. Further Rise of Already-High Chinabond Market Index............................. 10

2. Money Market Interest Rates Fluctuations (from Up to Down).................. 11
3. Obvious Yield Curve Flattening..................................................................... 13
Phasic Features.............................................................................................. 13
Bond Issuance, Redemption & Interest Payment..................... 18

Bond Issuance..............................................................................................
1.
18
Yearly Aggregate Issuance........................................................................ 18
-2-
2. Undertaking and Distribution Conditions...................................................

Bond Redemption and Interest Payment...................................................
19
19
Bond Balance Structure........................................................ 20

Bond Transaction and Settlement................................................ 22
Complete Market Transaction and Settlement...........................................
22
Inter-bank Market: Rapid Growth............................................................. 23
1. Spot Bond Transaction................................................................................
25
2. Collateralized Repo.......................................................................................
27
3. Buy/Sell Repo.................................................................................................. 29
4.
Forward Transaction................................................................................ 31
5. Overview on DVP Settlement........................................................................ 32

Sell Dominated OTC Market........................................................................
33
Stock Exchange Market: Bullish Index & Shrinking Transaction Volume. . .
35
Content of Diagrams
Table 1 Distribution of Bond Redemption & Interest Payment across Months

(Y2006)..................................................................................................... 20
Table 2 Complete Market Bond Transaction & Settlement (Y2006)...................... 23
Table 3 Rankings of Settlement Volumes of Various Bonds................................ 24
Table 4 Accumulated Turnover Rates of Bonds from Jan. to Dec. of 2006.......
26
Table 5 Spot Bond Transactions on Inter-bank Bond Market (Categorized by Buyin/Sell-out of Bonds by Institutions)................................................................. 27
Table 6 Maturity Types of Collateralized repo on Inter-bank Bond Market (Y2006)
28
Table 7 Profile for Collateralized repo on Inter-Bank Market (by Investors)....... 29
-3-
Table 8 Maturity Types of Buy/Sell Repo on Inter-bank Bond Market (Y2006). . . 30

Table 9 Profile for Buy/sell Repo on Inter-bank Market in 2006 (by Investors)
30
Table 10 Forward Transaction Growth in 2006 (by Date of Completion)...........
31
Table 11 Capital Flow of Forward Transactions in 2006 (by Date of Completion). . .

32
Chart 1 Year-on-year Growth Rates of Fixed Assets Investment
Chart 2 National Real Estate Climate Index
Chart 3 Trend for CPI & PPI Changes from 2005 to 2006
Chart 4 Year-on-year Growth Rates for M0
M1 and M2
10
Chart 5 Deposits & Loans of Financial Institutions
10
Chart 6 General Trend of Chinabond Index (2006)
11
Chart 7 Money Market Interest Rate (2006)
12
Chart 8 Comparison of Inter-bank T-bond Yield Curves at the Start/End of 2006

13
Chart 9 Trend for T-bond Yield Curve Changes from Jan. to March
14
Chart 10 Trend for T-bond Yield Curve Changes from April to July
15
Chart 11 Trend for T-bond Yield Curve Changes from August to October
16
Chart 12 Trend for T-bond Yield Curve Changes from November to December 17
Chart 13 Monthly Bond Issuance Volume
19
Chart 14 Year to Maturity Structure of Bond Balance as of End of 2006
21
Chart 15 Ratios of Settlement Volume at Various Markets (Y2006)
23
Chart 16 Ratios of Spot bond Transaction in Various Types of Bonds
26
Chart 17 Quarterly Overview on DVP Settlement across Years
33
Chart 18 Monthly Settlement Volume of OTC T-bond Transactions (Y2006)
34
Chart 19 T-bond (020015) Transaction Trend at ICBC
35
Chart 20 T-bond Transactions at Shanghai Stock Exchange (Y2006)
36
-4-
Contact Information:
Jia Yingzi, 86-10-88086273, jiayingzi@chinabond.com.cn
Li Jing, 86-10-88086283, lijing@chinabond.com.cn
Bond Information Department,
China Government Securities Depository Trust & Clearing Co. Ltd
Web site: www.chinabond.com.cn
Macro-economy Analysis for Year 2006
In 2006, the CPC (Communist Party of China) Central Committee and the State Council
adopted a series of gross control and structural readjustment measures for addressing
issues such as over-rapid increases of investment, credit and loans and trade surplus, so
as to prevent the Chinese economy from growing over-rapidly to over-heatedly. Obvious
achievements have been made as could be seen that over-rapid boom of investment, credit
and loans have initially been slowed down, and the macro-economy has got on a track for
-5-
soft-landing. However, the growth rate of investment in real estate industry restaged a
boom in the fourth quarter of the year of 2006 (see Chart 2), which indicated that overinvestment still constitutes a rather big problem in the current Chinese economy. And there
are also other problems waiting to be addressed, including over-surplus in Chinas foreign
trades and mounting strains on resources and environmental pollution. Therefore, the tight
monetary policy will continue to be implemented step by step and with differentiated
emphases in different phases in 2007. Meanwhile, a coordinated and combined use of the
fiscal policy and monetary policy will play a greater role in cementing the effects of previous
macro-regulation and control and in sustaining a stable growth of Chinas national economy.
In the year of 2007, excess liquidity will linger on and probably become more prominent in
the country. Thus China needs to be more cautious about and pay more attention to the
issue of inflation.

Slowing increase of fixed assets investment, a boom in property
development investment
From January to November, the urban fixed assets investment totaled 7.9312 trillion
RMB, an increase by 26.6% over the same period last year. The completed investment by
state-controlled enterprises in fixed assets reached 3.7746 trillion RMB, up by 17.7%.
Investment into the property development totaled 1.6416 trillion RMB, up by 24.0%. Across
different industries, the investment into railway transportation industry grew most rapidly to
172.8 billion RMB, up by 105.1%. With a total amount of 620.2 billion RMB, the generation
and supply of electric and thermal power industry had the largest absolute volume of
investment input, up by 13.5%.
Urban fixed assets investment reached 924.158 billion RMB in November, an increase
by 26.6% over the same period of last year (See Chart 1). Such an increase rate already
dropped back to the level of increase rate in February.
Chart 1
Year-on-year Growth Rates of Fixed Assets Investment
-6-
Date Source: National Bureau of Statistics of China
The national property development climate index rose in a run from October to
November of 2006. In November the index rose by 0.52 percentage point compared with
October and by 3.23 percentage points compared with the same period of last year to
103.92, which to some extent indicated that the average housing price in China was still
climbing up and its price hike during the two months was already higher than that in early
2005.
Chart 2
National Real Estate Climate Index
-7-

Data Source: National Bureau of Statistics of China
Hike in Consumers Price and Drop in Producers Price
The statistics of the year showed that the CPI, having fluctuated thrice in a step-shaped
curve, rose back to 1.9 in November, about the same as the CPI level in January. The figure
rebounded obviously at the end of November, recording a biggest hike since the beginning
of 2006. Of all structural components contributing to the CPI rebound, the food price factor
accounted for a major part. The food price was increased mainly as a result of a prominent
inflation of grain price and the other price factors comprising of the food price also expanded
by a larger margin of growth. Chinas Central Bank (the Peoples Bank of China) had
expressed its concern over an inflating CPI in a monetary policy report issued for the first
half of the year, saying there might be bigger risks of an upward CPI than a downward one in
the second half of the year, in particular, a greater inflation pressure on the price of assets
and services.
In 2006, the PPI (Producer Price Index), however, continued to decrease throughout the
year except some minor rebounds in three months, indicating a continual drop of industrial
product price. This PPI tendency showed, on the one hand that, thanks to tightening policies
such as control on liquidity and investment, the PPI had a reduced pressure for going up,
and the price gap between upstream and downstream enterprises narrowed down, which
was conducive to the profit growth of downstream enterprises; on the other hand that, the
current economic operation was challenged by worsening reality of overproduction.
Moreover, the drop of crude oil price on the international market also constituted an external
factor contributing to the decreasing producer price index for finished industrial products.
-8-
Chart 3
Trend for CPI & PPI Changes from 2005 to 2006
Money Supply: Adequate Aggregate Amount & Excess Liquidity
In 2006, the financial conditions in China had been moving forward steadily thanks to
timely and appropriate readjustment and control of the aggregate supply of money and credit
under the guidance of the Central Banks stable monetary policy. The steady financial
performance effectively promoted a stable, concerted and rapid development of Chinas
national economy. The gross credit and loans set a record high as the year of 2006
witnessed a continuous and high growth of credit availability. Yet such over-fast growing
momentum of credit and loans was curbed as a result of Central Banks macro-control that
further reduced the loan-to-deposit ratio. By the end of December of 2006, the M2 (broad
money) balance was 34.56 trillion RMB, an increase by 16.94% over the same period of
2005 and such growth margin was 0.63 percentage point lower than that at the year-end of
-9-
2005; M1 (narrow money) balance scored 12.60 trillion RMB, an increase by 17.48%, growth
margin up by 5.7 percentage points; M0 (currency in circulation) balance 2.71 trillion RMB,
an increase by 12.65%. The year-round net cash supply accumulated to 304.1 billion RMB,
47.8 billion RMB more than that of 2005. Generally speaking, the growth of the aggregate
money supply was compatible to Chinas economic development. In 2006, the total deposits
at all financial institutions grew steadily. As of the end of December, the balance of total
deposits in both domestic and foreign currencies at all financial institutions reached 34.80
trillion RMB, an increase by 15.94% over that of 2005, of which, the balance of RMB
deposits totaled 33.54 trillion RMB, up by 16.82%. The overall RMB deposits increased by
4.93 trillion RMB in 2006, 522.6 billion RMB more than that of the previous year. While the
balance of deposits in foreign currencies amounted to 161.1 billion U.S. dollars, down by
0.28%. The overall deposits in foreign currencies saw an increase of 8.9 billion U.S. dollars
in 2006, up by 2.1 billion U.S. dollars than 2005. However, the deposits in foreign currencies
plunged by 2.7 billion U.S. dollars in December, down by 3.5 billion U.S. dollars compared
with the December of 2005 (there was an increase of 800 million U.S. dollars deposits in
foreign currencies in December of 2005 compared with that in December of 2004).
The growth of M0 was seeing a slowdown since November, but the overall growth rates
for M0 and M1 in 2006 were higher than that of 2005 and are sustaining an upward trend
due to increasing growth rate for the RMB equivalent of official foreign exchange holdings.
The quick decline of the money market interest rate in December and the continued
expansion of monthly gross loans implied that the bank capital liquidity was still rising and
the problem of excess liquidity remained severe. Although the present step-shaped rising
tendency of CPI was not a full evidence that inflation had already formed, yet the continuous
climb-up of housing price and rapid soaring of the stock market did indicate a continuous
rise in asset price and that the money supply was still expanding in fast pace. Therefore a
basic conclusion is that the risks of inflation are growing bigger. In 2007, China is more likely
to continue its stable monetary policy and keep various factors that might lead to more risks
of inflation within a controllable span so as to ensure a better and swifter growth of national
economy.
- 10 -
Chart 4
Year-on-year Growth Rates for M0 M1 and M2

M0
M1
M2
Unit:%
25
20
15
10
06-11
06-09
06-07
06-05
06-03
06-01
05-11
05-09
05-07
05-05
05-03
05-01
Chart 5
Deposits & Loans of Financial Institutions
- 11 -

Bond Market Trend Analysis
Analysis on Price & Interest Rates Movement of Chinese Bond Market
1. Further Rise of Already-High Chinabond Market Index

The inter-bank bond market in 2006 continued the previous years rising trend and
moved upward from an already high position with a number of fluctuations. The overall
China Bond Market Index opened at 112.8879 points at the beginning of 2006 and closed at
115.8752 points by the year-end, up by 2.9873 points, with a Return on Investment rate of
2.6%.
Chart 6
General Trend of Chinabond Index (2006)
Data Source: www.chinabond.com.cn
2. Money Market Interest Rates Fluctuations (from Up to Down)

In 2006, the market is full with liquidity and a series of strengthening of tight monetary
policies made the overall money market interest rate even higher than that of 2005. The
interest rate moved upward with fluctuations at the beginning of the year, and went down
after a peak high near the year-end. Such a pattern was most evident in the moving trends
for 7-day and 1-day repo interest rates (i.e. R01D and R07D, both rates are vanes for
market flow of short-term capital). R01D rose by 13.3 basic points from 1.39% at the start of
the year to 1.523%; R07D decreased slightly by 3 basic points from 1.502% to 1.472%.
- 12 -
Interest rate for one-year Central Bank bond jumped by 88.5 basic points from 1.911% to
2.796%.
Chart 7
Money Market Interest Rate (2006)
It was worthy of notice that R01D and R07D experienced the biggest margin of increase
this year and jumped to a peak point in mid November because more pressure on market
capital aspect when the Central Bank announced another raise of the minimum reserve
requirement of banks on Nov. 3, and large amount of capital locked up on the stock market
due to a flurry of IPOs made the case even worse. R07D surpassed the 3-month and 1-year
Central Bank bond interest rate and thereinafter continued to rise by wide margin for a
successive of ten days or so, and exceeded to a peak high of more than 3.98% on Nov. 20,
- 13 -
an interest rate of over 100 basic points higher than that for 1-year Central Bank bonds.
R01D also soared to 3.60% about the same period. The pressure on market capital aspect
was to some extent relieved only after 4 consecutive weeks of capital input by the Central
Bank through open market operations and a gradual unfreeze of capital as of the end of
concentrated IPOs. The money market interest rate began to decline sharply in December to
almost the same level of interest rate at the beginning of 2006.
In 2006, the Central Bank withdrew a net of 691.258 billion RMB of currencies through
open market operations. The obviously effective tightening measures and a stable money
market helped the economy head towards a soft landing. In December alone, the net
currency withdrawal by the Central Bank totaled 13.288 billion RMB; money supply reached
398.0 billion RMB, up by 209.0 billion RMB over the previous month, of which 288.0 billion
RMB was Central bank bond to maturity and 110.0 billion RMB was sell repo to maturity. The
general volume of withdrawal of money supply in the month amounted to 242.6 billion RMB,
up by 122.6 billion RMB over November, of which 242.6 billion RMB was done through the
issuance of the Central Bank bonds (by value date) and 0 was done through reverse repo to
maturity.
3. Obvious Yield Curve Flattening
The curve for inter-bank T-bond yield curve demonstrated a turn for flattening in 2006
with the 7-year-term financial product as the turning point. The return rate for inter-bank Tbonds below 7 years term moved up by a big margin of an average of 20 basic points. The
return rates for bonds below 1-year term saw the most obvious surge by 33 basic points.
However the return rates for bonds above 10 years term went down slightly by an average
10 basic points.
Chart 8
Comparison of Inter-bank T-bond Yield Curves at the Start/End of 2006
- 14 -
Phasic Features
Different from a unilateral boom in 2005, the bond market showed more phased and
gradual rise with fluctuations in 2006 due to a number of contradicting problems. Such a rise
pattern of the bond market was definitely relevant to Chinas complicated macro-economic
environment and frequent macro-control measures rolled out by responsible ministries and
departments. The moving trend of the Chinese bond market in 2006 could be defined in the
following phases:
Phase 1: from January to March, good opening of bond market, bond indexs
rise with fluctuations, certain hike in market interest rate and low-positioned yield
curve.
From January to March, the national economy was well moving forward with low price
index, reduced expectation on inflation and investors active transactions on and investment
into the bond market. The overall China Bond Index climbed up with fluctuations throughout
the three months, rising by 1.3315 points or 1.18% from 112.8879 points at early January to
114.223 points by late March.
During the same period, the money market interest rate increased slightly as a result of
expanded scale of loans from the commercial banks and the transfer of a portion of market
- 15 -
capital to corporate loans. The R07D rose by 8% from 1.50% to 1.62%.

The yield curve remained at a low position. Because of investors pursuit of long-term
bonds, the return rate began to drop sharply and the yield curve began to flatten. With the 5year term bonds as the axis, the two parts of the curve began to show differentiated trends
as the return rate for short-term bonds below 1-year term declined by a small margin of 5
basic points while that for the long-term bonds of 30-year term plunged down by 25 basic
points.
Chart 9
Trend for T-bond Yield Curve Changes from Jan. to March
10
15
20
30
2006-11 %
1.76
1.98
2.18
2.51
2.7
7
3.07
3.38
3.56
3.75
2006-331 %
1.71
1.91
2.12
2.55
2.7
0
2.95
3.22
3.43
3.50
Change(BP)
-4.74
6.65
-5.53
4.27
7.0
4
11.36
15.47
13.25
24.57
Yield for Bonds

of Key Maturities
Data Source; www.chinabond.com.cn
Phase 2: from April to July, a flurry of adoption of tightening monetary policies,

declining momentum of China Bond Index, big hike of market interest rate and
obviously upward-moving yield curve.
With a strongly growing macro-economy, continuous over-rapid increasing of fixed
- 16 -
assets investment and rapidly expanding scale of new loans in the first quarter, the problem
of excess liquidity caught great attention from relevant responsible administrative organs. In
order to further cool down the economic growth and stabilize market interest rates, the
Central Bank announced in succession of one raise of interest rate for loans, two raises of
minimum reserve requirement of banks and three issuances of targeted bonds to tighten the
market capital aspect. The heated T-bond market cooled down, as could be seen from the
drop of China Bond Index by 1.2357 points or 1.08% from 114.2694 in early April to
113.0337 in late July.
The money market interest rate was ballooning during this period, especially before
each announcement of a tightening policy. R07D rocketed by 104 basic points or 64.66%
from 1.613% in early April to 2.656% in late July.
The whole yield curve moved upwardly to higher parallel with return rates for bonds of
various terms increasing by an average of 39 basic points.
Chart 10
Trend for T-bond Yield Curve Changes from April to July
10
15
20
30
2006-43
1.72
2.00
2.47
2.68
2.92
3.20
3.43
3.52
2006-731
2.23
2.52
2.78
3.04
3.26
3.58
3.79
3.88
Change BP)
51.00
52.41
31.12
34.00
38.00
Yield for Bonds

of Key Maturities
- 17 -
35.7
36.0
36.00
Phase 3: from August to October, strong surge of China Bond Index, drop of
money market interest rate from a high level, and a parallel moving down of the
yield curve.
The frequent rolling out of macro-control and regulation policies in the previous phase
forged certain temporary pressure on the bond market, but a large amount of idle market
capital accumulated huge supportive force further pushing up the bond market. During the
period from August to October, the bond market resumed its growing momentum, with the
China Bond Index rising by 2.8213 points or by 2.5% to 115. 762 points.
As the governments macro-control gradually demonstrated more obvious effects, there
was reduced expectation for more tightening policies targeted at the market. The money
market interest rate declined steadily, for example, the R07D had been stable and
decreased only by 11.02%.
The yield curve experienced a parallel going down. The return rates for long-term bonds
dropped by a relatively bigger margin because the continuous pursuit of such long-term
bonds by investors on the market resulted a price hike of them.
Chart 11 Trend for T-bond Yield Curve Changes from August to October
Yield for Bonds
of Key
Maturities
- 18 -
10
15
20
30
2006-81
2.22
2.51
2.78
3.04
3.25
3.57
3.77
3.86
2006-1031
2.01
2.32
2.51
2.73
2.95
3.23
3.40
3.50
Change
BP)
-20.96
-19.11
-26.98
-31.33
-29.88
-34
-37
Phase 4: from November to December, China Bond Index readjustment at a

high level due to influence by IPOs, drop of money market interest rate after a peak
high, and a slightly parallel moving up of the yield curve.
The bond market was faced with doubled pressure on the capital aspect since
November 3 of 2006 on which the Central Bank announced another raise of minimum capital
reserve requirement of banks and a successive of IPOs were issued. The bond market
readjusted itself around a high index level. The overall China Bond Index rose by a small
margin of 0.1106 point or 0.10% to a closing of 115.8752 points at the end of the year.
The money market interest rate was also impacted by the unfavorable market capital
aspect. The rate rocketed in early November and declined back near the year-end. The yield
curve moved up slightly during this phase. The 3-year bonds and 7-year bonds, which were
of best liquidity, moved up by largest margins of 11 and 13 basic points respectively. The
interest rates for bonds of various terms averaged a drop of 8 basic points.
Chart 12
Trend for T-bond Yield Curve Changes from November to December
- 19 -
-36
10
15
20
30
2006-111
2.01
2.32
2.51
2.73
2.95
3.23
3.40
3.50
2006-1231
2.09
2.44
2.58
2.87
3.03
3.28
3.43
3.61
Yield for Bonds

of Key Maturities
Change BP)
7.75
11.7
7.33
13.7
8
7.24
10.5
1.
Bond Issuance, Redemption & Interest Payment
Bond Issuance
Yearly Aggregate Issuance

The year of 2006 saw 498 bond issuances with a total volume of 5.676611 trillion RMB,
159 issuances more than and 34.57% up from the previous year. Of all volume of issued
bonds, the Central Bank bonds accounted for the largest part, at about 3.657381 trillion
RMB or taking up for 64.43% of the total, followed by financial bonds, treasury bonds, CP
(commercial paper) and corporate bonds, with respective proportion of 16.24%, 12.21%,
5.14% and 1.75%.
Compared with 2005, the issuance volume of commercial bank bonds and international
institution bonds went down while the volume of all the other types of bonds demonstrated
rapid growth. Of all bonds, the local corporate bonds scored the highest growth by 586%.
The runner-ups are ABS & MBS (asset-backed securities and mortgage-backed securities)
and CP, respectively up by 177.21% and 105.02%. The issuance of book-entry T-bonds
increased by 29.58% and the policy bank bonds up by 42.94%.
After three years of research and preparation and drawing on the actual experience for
managing certificate T-bonds at home and international practices from abroad, the Ministry
of Finance chose some commercial banks as piloting undertakers for the issuance of a new
type of bond productthe savings bond. On July 1 of 2006, these commercial banks began
- 20 -
to sell the first (electronic) savings bond to Chinese citizens living in China. By the end of the
year, such bond was issued twice with total volume reaching 40 billion RMB (par value).
Chart 13 Monthly Bond Issuance Volume
Data Source: China Government Securities Depository Trust & Clearing Co. Ltd
2. Undertaking and Distribution Conditions

Commercial banks were the most important undertaking institutions for issued bonds,
which undertook 84.28% of the sale of the total bonds. The second biggest undertaker and
third one were securities companies (11.92%) and the insurance companies (2.00%). In
terms of undertaking and distributing types, the securities companies were different from the
other institutions as the latter undertook the bonds only through buy-ins. The net buy-ins by
insurance companies and commercial banks were 121.7 and 110.3 billion RMB respectively.
The net sell-out of issued bonds by securities companies totaled 295.35 billion RMB,
- 21 -
accounting for 44.37% of their overall undertaking volume.
Bond Redemption and Interest Payment
245 bonds, all RMB bonds, were redeemed and paid with interest in 2006. The bonds due
to maturity had a total redemption and interest payment of 3.4618 trillion RMB, up by
62.74%. Interest payment totaled 275.298 billion RMB, up by 122.13%. Of all the bonds due
to maturity, the Central Bank bonds made up the largest portion of 73.02%. The book-entry
bonds and policy bank bonds accounted for 12.54% and 9.94% separately.
The book-entry T-bonds gained the most interest payment for117.674 billion RMB,
42.73% of all interest payment. The policy bank bonds and Central Bank bonds had an
interest payment of 79.874 billion RMB and 47.155 billion RMB, respectively taking up
29.01% and 17.13% of the total interest payment.
The peak time for redemption of bonds was in June and September, interest payment in
December and highest number of redemptions in March.
Table 1
Distribution of Bond Redemption & Interest Payment across Months (Y2006)

Corpus
Unit: 100 million

6,000
Interest
60
No. of
Redemption
50
4,000
40
30
2,000
20
10
0
01
02
03
04
05
06
07
08
09
10
11
12
- 22 -
Bond Balance Structure
China Government Securities Depository Trust & Clearing Co. Ltd had 774 bonds
under custody by the end of December of 2006, 260 more than the previous year. RMB
bonds outstanding grew by nearly 2 trillion RMB to 9.25 trillion RMB, up by 27% over the
year of 2005; the USD bonds outstanding totaled 4.23 billion USD, up by 67%.
The tradable volume of bonds on inter-bank market reached 8.6 trillion RMB as of the
end of December, taking up 93.12% of all bonds outstanding; cross-market deposited bonds
1.5 trillion RMB, 16.72%; tradable volume of bonds at the stock exchanges 0.35 trillion RMB,
3.83%; tradable volume of bonds on over-the-counter (OTC) market of commercial banks
0.05 trillion RMB, 0.51%; bonds that could not be traded on the above-mentioned markets
0.4 trillion RMB, 4.81%.
The deposited treasury bonds, deposited Central Bank bonds and deposited policy
bank bonds constituted the corporal part of the overall volume of all deposited bonds, each
type accounting for about one third of the total, specifically, the deposited treasury bonds
31.42% or 2.9 trillion RMB, the deposited Central Bank bonds 34.94% or 3.23 trillion RMB,
and the deposited policy bank bonds 24.7% or 2.28 trillion RMB, while other types of
deposited bonds 8.94%.
Various types of deposited bonds grew rapidly throughout the year. The local
corporate bonds recorded the highest growth rate for 571.67%, helping to push up the
overall amount of corporate bonds by 57.17%. The CP expansion ran the second for an
increase by 93.2%, bringing up its share of deposited volume in the whole market from 1.9%
in 2005 to 2.88% in 2006. The deposited Central Bank bonds increased by 42.74%, giving
strong support to implement the countrys monetary policies and bringing up its market
proportion to 34.94%, up by 3.7 percentage points. Under the influence of a steady fiscal
policy, the growth of T-bond issuance was well controlled, up only by 7.29% over the
previous year, bringing its share among all the deposited market bonds down by 6
percentage points to 31.42%. If factors such as the redemption and interest payment of
savings bonds (certificate type) and the rocketing boom of local corporate bonds excluded
- 23 -
from calculation, the average growth rate of the deposited volume of each of the other types
of bonds was 35.7%.
With a view to the deposited bond structure on maturity, below-1-year bonds, 1-to-3year bonds and 3-to-5 year bonds made up the majority share of 72.5% of all deposited
market bonds, with the total deposited volume reaching 6.7 trillion RMB. 5-to-7-year and 7to-10-year bonds aggregated to 1.38 trillion RMB, accounting for 14.96% of all deposited
bonds; 10-year-above bonds 1.16 trillion RMB or 12.54%.
Chart 14
Year to Maturity Structure of Bond Balance as of End of 2006
Unit Year to maturity, 100 million RMB %
The commercial banks were still the main investors of bonds, whose bond holdings
accounted for 71.21% of the total deposited market bonds in 2006. The bullish performance
of the stock market led the fund institutions, stock exchanges and other types of investors to
reduce their holding of bonds. Apart from the above-mentioned investors who reduced their
bond holdings, the other investors all increased their stake with the total volume increasing
by 1.99 trillion RMB (including 1.46 trillion RMB of newly issued bonds in 2006). The foreignfunded banks and securities companies increased their bond holdings by a large margin for
189% respectively. The commercial banks and cooperative banks in rural areas also
demonstrated a strong momentum in increase of holdings of various bonds, up by 111% and
- 24 -
79% separately. It was also a similar case with the non-banking financial institutions which
raised their bond holdings by 85.14%. This suggested a rapid growing demand for bond
assets by the non-banking financial institutions.
Bond Transaction and Settlement
Complete Market Transaction and Settlement

1.99 million bond transactions were settled in 2006 with a total volume of 40.19 trillion
RMB. 95.44% of the transaction settlements were done on the inter-bank bond market (the
main part of the bond markets). 4.55% at stock exchanges and 0.01% over the counters.
The institutional investors were the major players on the inter-bank bond market. The
average settlement volume per transaction was 238 million RMB. The individual investors
were more active at the stock exchange market or the over-the-counter market. Their
average settlement volume per transaction averaged 1.03 million and 70 thousand RMB
separately.
Table 2
Complete Market Bond Transaction & Settlement (Y2006)
Markets
No. of Settlements
Par value/Volume
10 thousand
100 million RMB
Inter-bank Market
Stock
Shanghai
Exchange
Stock
Market
16.08
383558.25
157.74
18130.29
19.88
149.04
5.98
42.79
199.68
401880.37
Exchange
Shenzhen
Stock
Exchange
Commercial Bank OTC
Total
- 25 -

Data Source: data on inter-bank market and commercial banks over-the-counter market are from
the China Government Securities Depository Trust & Clearing Co. Ltd and are in terms of par value.
Data on the stock exchange market are sorted results based on official websites of the Shanghai
Stock Exchange and the Shenzhen Stock Exchange and are in terms of capital volume.
Chart 15 Ratios of Settlement Volume at Various Markets (Y2006)
Data Source: data on inter-bank market and commercial banks over-the-counter market are from
the China Government Securities Depository Trust & Clearing Co. Ltd. Data on the stock exchange
market are sorted results based on official websites of the Shanghai Stock Exchange and the
Shenzhen Stock Exchange.
Inter-bank Market: Rapid Growth
There were a total of more than 160 thousand transactions on the inter-bank market in
2006, with total settlement volume reaching approximately 40 trillion RMB, an increase by
62.82% and 51% respectively. The collateralized repo recorded the biggest growth of
settlement volume, up by 10.77 trillion RMB over the previous year. The forward transaction
recorded the fastest growth. 326 more transactions were done and the settlement volume
increased by 62.782 billion RMB, up by 5 and 6 times respectively.
- 26 -
Throughout the 248 trading days of the year, there were 648 transactions every day and
everyday settlement volume averaged 154.661 billion RMB, the settlement volume per the
transaction averaged 239 million RMB.
The Central Bank bonds, book-entry T-bonds and policy bank bonds were the main
components of all transacted and settled bonds, the volume of each exceeding 11 trillion
RMB, each accounting for 30% or so of the total transaction and settlement volume. The CP
and commercial bank bonds took up 5% and 3% respectively.
There were 9 transactions in USD, with a total settlement volume of 79 million USD,
remaining almost the same level as that in 2005
Table 3
Rankings of Settlement Volumes of Various Bonds
Bond Types
No. of
Total of Settlement
Ratio to Yearly
Transactio
Par value(100
Aggregate Settlement
ns
million)
Volume
Central Bank Bond
39,448
117,534.68
30.64%
Book-entry T-bonds
39,973
113,496.17
29.59%
Policy Bank Bonds
52,185
110,428.67
28.79%
CP
27,108
19,650.61
5.12%
Commercial Bank
7,397
12,625.89
3.29%
6,908
5,341.67
1.39%
Local Corporate Bonds
4,594
2,260.07
0.59%
Non-banking financial
1,149
1,766.01
0.46%
357
394.21
0.10%
57
54.65
0.01%
14
5.6
0.00%
160,796
383,558.25
100.00%
Bonds
Central/National
Corporate Bonds
Institution Bonds
International Institution
Bonds
Securities Company
Bonds
ABS&MBS
Total
1. Spot Bond Transaction

The settlement volume of spot bond transactions increased by 72.5% over 2005 to 10.9
trillion RMB and the number of the transactions increased by 60.73% to 88 thousand. In
terms of types of bonds involved in spot bond transactions, the Central Bank bonds took up
- 27 -
the largest proportion of 41.79%, with a settlement volume of 4.6 trillion RMB. The bookentry T-bonds and CP accounted for 11.5% and 11.16% separately, with their respective
settlement volume totaling 1.3 trillion and 1.2 trillion RMB.
The daily spot bond transactions numbered 355 with a settlement volume of 44.083
billion RMB. The monthly spot bond transactions numbered 7330 with an overall settlement
volume of 911.055 billion RMB. The spot bond business ranked the first among all
businesses related to various types of bonds in terms of both daily and monthly number of
transactions. In terms of daily and monthly settlement volume, the spot bond ran only after
collateralized repo.
If we analyze the residual maturity of the transacted bonds, we would find out that the
inter-bank bond market investors had more preference to bonds of mid-or-short residual
maturity and their bond transactions mainly focused on bonds of short residual maturity.
Concerning the ratios of bonds of different residual maturity among the overall transacted
bonds, the bonds of below-1-year residual maturity accounted more than half of the total, the
bonds of 1-to-5-year residual maturity 26%. The 1-to-10-year bonds witnessed the highest
growth over the year of 2005 by 122%, the 10-to-15-year bonds by 93% and the below-1year bonds by 77.48%. The spot bond transaction of bonds of 1-to-5-year or 5-to-7 year
residual maturity both averaged a growth of 57%. That for bonds of 15-to-30 residual
maturity expanded slightly over the previous year by 7.61%.
On the liquidity aspect, the average turnover rate of bonds was 152%. The liquidity of
CP ranked the first with a turnover rate of 457.28%, ahead of commercial bank bonds,
international institution bonds, corporate bonds, the Central Bank bonds, policy bank bonds,
book-entry T-bonds, non-banking financial institution bonds and securities company bonds.
The ABS &MBS had the lowest liquidity, with only a turnover rate of 2.98%.
Concerning the buy-in and sell-out of bonds by various types of institutions, the nonbanking financial institutions had the biggest net buy-in, with total volume reaching 244.852
billion RMB, followed by the credit cooperatives, special settlement members, funds, nonfinancial institutions and other investors. Of all institutions, the securities companies had the
biggest sell-out of bonds, with general volume reaching 261.354 billion RMB, followed by
commercial banks and insurance institutions.
- 28 -
Chart 16
Ratios of Spot bond Transaction in Various Types of Bonds
Table 4
Accumulated Turnover Rates of Bonds from Jan. to Dec. of 2006
Unit: 100 million

Deposited
Bond Types
Accumulated
Accumulate
Bond
Settlement
d Turnover
Balance as
Volume from
Rate from
of month-
Jan. to Dec.
Jan. to Dec.
end
CP
2,667.10
12,196.16
457.28%
Commercial Bank Bond
2,304.00
7,050.20
306.00%
76.5
255.00%
International Institution
30.00
Bonds
Corporate Bonds
2,831.50
4,815.37
170.06%
Central Bank bonds
32,299.65
45,686.44
141.45%
Policy Bank Bonds
22,835.73
26,837.73
117.53%
- 29 -
Book-entry T-bonds
28,648.17
12,568.77
43.87%
210.00
80.40
38.29%
38.19
9.45
24.74%
ABS & MBS
187.74
5.6
2.98%
Savings Bonds (electronic)
400.00
NA
NA
96,662.40
153.51%
Non-banking Financial
Institution Bonds
Securities Company Bonds
Total
62,967.98
Table 5
Spot Bond Transactions on Inter-bank Bond Market (Categorized by Buy-in/Sellout of Bonds by Institutions)
Institution Types
No. of Buy-
Total Par
No. of Sell-
Par value of
in
value of
outs
Sell-outs
Transaction
Buy-ins
Transaction
(100 million
(100 million
RMB)
RMB)
Insurance Institutions
3,054
1,958.63
1,959
1,982.12
Credit Cooperatives
3,998
2,937.75
2,862
2,093.56
64
48.01
24
24.11
Other Investors
Commercial Banks
46,866
65,476.45
48,628
67,357.93
18,521
21,968.21
17,223
21,692.71
685
1,383.98
367
Securities Companies
10,352
8,472.02
12,742
11,085.57
Non-financial
2,494
1,443.10
2,605
1,384.72
1,922
5,638.47
1,546
3,153.95
87,956
109,326.62
87,956
109,326.62
Funds
Special Settlement
551.95
Members
Institutions
Non-banking Financial
Institutions
Total Spot Bond
Transactions
2. Collateralized Repo
In 2006, there were a total of 70.706 thousand settled transactions of collateralized repo
on the inter-bank bond market, with the overall settlement volume reaching 27.06 trillion
RMB, up by 41% and 66% respectively over the previous year, accounting for 43.97% of the
settled transactions and 70.55% of the settlement volume of bonds on the whole inter-bank
market. The number of daily settled transactions averaged 285 with an overall settlement
- 30 -
volume of 109.108 billion RMB. The monthly figures for these two items were 5892
transactions and 3.196319 trillion RMB respectively. The collateralized repo topped all the
bond transaction businesses in terms of either daily or monthly settlement volume.
Of all types of termed repo, the overnight repo was the most transacted type, with a
total number of 19.982 thousand transactions and the total settlement volume amounting to
11.2 trillion RMB, accounting for 41.55% of the aggregate settlement volume of all
collateralized repos. The 7-day repo came after the overnight repo, with a total of 32.125
thousand transactions and a settlement volume of 9 trillion RMB, taking up 33.26% of all
types of collateralized repos.
Concerning the repo directions, the commercial banks, insurance institutions, fund
companies, credit cooperatives and securities companies were the major parties engaging in
sell repo. The scale of reverse repos of the commercial banks, special settlement members
and the non-financial institutions outweighed the scale of their sell repos.
Table 6
Maturity Types of Collateralized repo on Inter-bank Bond Market (Y2006)
Types
No. of
Total Par value
Transactions
(Unit: 100 mln RMB)
Ratio
R01D
19,982
112,433.31
41.55
R02D
1,561
6,221.66
%
2.30%
R03D
5,710
28,093.90
10.38
R07D
32,125
89,992.75
%
33.26
R14D
7,656
24,885.29
%
9.20%
R21D
1,536
4,056.65
1.50%
R01M
1,261
2,928.95
1.08%
R02M
514
942.86
0.35%
R03M
225
606.37
0.22%
R04M
36
21.21
0.01%
R06M
66
47.32
0.02%
R09M
15
125.47
0.05%
R01Y
19
232.04
0.09%
270,587.77
100.00
Total
70,706
%
- 31 -
Table 7
Profile for Collateralized repo on Inter-Bank Market (by Investors)
No. of
Institutions
Sell Repo
Par value for
No. of
Par value for
Sell Repo
Reverse
Reverse Repo
(100 million RMB)
Transactio
(100 million
Repo
ns
RMB)
Transactio
ns
Non-financial
4,387
21,833.45
693
2,786.09
515
582.93
294
155.29
1,927
7,361.01
2,587
7,784.03
9,480
24,018.94
1,627
3,433.25
0.4
40,478
195,451.27
56,502
237,267.20
627.51
1,196
8,338.79
10,596.71
Institutions
Non-banking
Financial Institutions
Fund
Other Investors
Commercial Banks
Special Settlement
98
Members
Credit Cooperatives
Securities
11,743
18,538.59
7,708
2,078
2,174.07
96
70,706
270,587.77
226.02
Companies
Total
70,706
270,587.77
3. Buy/Sell Repo
In 2006, there were a total of 1744 thousand settled buy/sell repo transactions on the
inter-bank bond market, with the overall settlement volume reaching 292.484 trillion RMB, up
by 11% and 33% respectively over the previous year, accounting for 1.08% of the settled
bond transactions and 0.76% of the settlement volume on the whole inter-bank market. The
number of daily settled transactions averaged 7 with an overall settlement volume of 1.179
billion RMB. The monthly figures for these two items were 145 and 24.374 billion RMB
respectively. The settlement volume per transaction averaged 168 million RMB.
Of all repos of different terms, the 7-day repo was the most transacted type, with a total
number of 875 transactions and the total settlement volume amounting to 151.517 billion
- 32 -
RMB, accounting for 51.8% of the aggregate settlement volume of all buy/sell repos. The 14day repo came after the 7-day repo, with a total of 296 transactions and a settlement volume
of 45.931 billion RMB, taking up 15.7% of the settlement volume of all types of buy/sell
repos.
Concerning the repo directions, the commercial banks, credit cooperatives and
securities companies were the major parties engaging in sell repos. The commercial banks,
the non-banking financial institutions and insurance companies were the major parties to
operate reverse repos.
Table 8
Maturity Types of Buy/Sell Repo on Inter-bank Bond Market (Y2006)
Types
No. of
Total transactions of
Transactio
Par value
ns
(100 million RMB)
Ratio
R01D
53
109.86
3.76%
R02D
68
114.57
3.92%
R03D
63
115.29
3.94%
R07D
875
1,515.17
51.80
%
R14D
296
459.31
15.70
%
R21D
78
121.82
4.17%
R01M
118
123.52
4.22%
R02M
71
103.28
3.53%
R03M
122
262.02
8.96%
Total
1,744
2,924.84
100.00
%
Table 9
Profile for Buy/sell Repo on Inter-bank Market in 2006 (by Investors)
Institution
No. of Sell
Par value for Sell
No. of Reverse
Par value for
Types
Repo
Repo Transactions
Repo
Reverse Repo
Transactio
(100 million RMB)
Transactions
(100 million RMB)
ns
1.20
24.40
Non-banking
3.00
25.70
2.40
0.00
58
145.47
100
159.20
Financial Institutions
Funds
Commercial Banks
- 33 -
Special Settlement
1.00
0.00
30
35.20
6.10
21
28.53
1.40
121
216.80
121
216.80
Members
Credit Cooperatives
Securities
Companies
Total
4.
Forward Transaction
In 2006, there was a big swelling of the settlement volume of the forward transactions. A
total of 390 forward transactions had an overall settled par value of 71.901 billion RMB.
These two figures rocketed by 509% and 688% respectively over the previous year. The
number of settled forward transactions accounted for 0.24% of the number of all settled
bond transactions on the inter-bank bond market. Their par value accounted for 0.19% of all
the settlement volume of bond transactions on whole the inter-bank market. The number of
daily settled transactions averaged 2 with an overall settlement volume of 290 million RMB.
The monthly figures were 33 and 5.992 billion RMB respectively. The settlement volume per
forward transaction averaged 184 million RMB.
385 forward transactions were done in the year of 2006,with transaction par value
totaling 65.846 billion RMB. Of all the forward transactions, the 7-day forward transaction
had the largest number of transactions done, followed by 14-day and 21-day types.
Concerning the post-transaction capital flow, the commercial banks were the major netbuy party whose pure buy-in totaled 14.422 billion RMB; while the securities companies
were the major net-sell party whose pure sell-out reached 13.052 billion RMB.
Table 10
Forward Transaction Growth in 2006 (by Date of Completion)
2005
2006
Year-on-Year
Increase %
No. of
Par value
No. of
Par value
No. of
Par value
Transactio
(100
Transactio
(100 million
Transactio
(100 million
ns
million
ns
RMB)
ns
RMB)
RMB)
T
y
p
- 34 -
e
s
F
31
41.19
209
396.82
574%
863%
24
35.97
102
83.50
325%
132%
3.23
34
23.45
580%
626%
8.15
0.90
-88%
-89%
12
20.10
14
11.09
17%
-45%
5.20
1.30
0%
-75%
12.40
4.00
60%
-68%
9.40
-100%
-100%
5.00
-100%
-100%
6.00
-100%
-100%
0
7
D
F
1
4
D
F
2
1
D
F
0
1
M
F
0
2
M
F
0
3
M
F
0
4
M
F
0
5
M
F
0
7
M
F
0
9
M
- 35 -
11
30.68
14
137.40
27%
348%
108
177.32
385
658.46
256%
271%
0
1
Y
T
o
t
a
l
Table 11 Capital Flow of Forward Transactions in 2006 (by Date of Completion)
Institution
s Types
No.
of
Par value of
No. of
Par value of
Net Par value of
Buy-ins
Buy-ins (100
Sell-outs
Sell-outs
Buy-ins (100
(100 million
million RMB)
million RMB)
RMB)
Insurance
0.00
5.60
-5.60
19
129.50
10
130.30
-0.80
329
512.64
152
368.42
144.22
0.40
0.00
0.40
5.00
13
12.70
-7.70
32
10.92
208
141.44
-130.52
385
658.46
385
658.46
Institutions
Nonbanking
Financial
Institutions
Commerci
al Banks
Special
Settlement
Members
Credit
Cooperativ
es
Securities
Companie
s
Total
0.00
5. Overview on DVP Settlement

The year of 2006 saw a big growth of inter-bank bond market transactions settled
through DVP, with the total number of settled transactions reaching 34.563 thousand and the
- 36 -
settlement volume reaching 15 trillion RMB (Par value), accounting for 21.49% of the
number and 39.33% of the overall settlement volume of all transactions on the whole interbank bond market, up by 99% and 125% separately. Of all these transactions settled
through DVP, the volume of collateralized repo transactions settled through DVP accounted
for 31.85% of the overall settlement volume of bond transactions on the inter-bank market,
followed by spot bond transactions through DVP for 6.92%, and the buy/sellrepo
transactions and forward transactions through DVP, both for less than 1%.
Across the different types of bond businesses, the DVP settlement was most widely
used in the collateralized repo transactions. 45.15% of the collateralized repo transaction
businesses were settled through DVP, ahead of 24.26% of spot bond transactions, 55.15%
of buy/sell repo and 0.37% of forward transactions.
The commercial banks were the major institutions settling transactions through DVP.
The number and settlement volume of DVP transactions at commercial banks accounted for
99.84% and 91.88% of the overall number and settlement volume of all DVP transactions,
followed by DVP transactions with special settlement members (4.88%), at non-banking
financial institutions (3.01%), and credit cooperatives (0.22%). Despite the fact that the credit
cooperatives took up a tiny of 0.22% of the settlement volume of all DVP transactions, the
number of these DVP transactions at the cooperatives accounted for 2.88% of the overall
number of all DVP transactions.
Moreover, the chronological data on DVP settlement showed that the number of
transactions settled through DVP and their total settlement volume increased steadily over
the years. Being a risk-cutting settlement approach, DVP is gaining wider popularity among
various institutional investors.
Chart 17
Quarterly Overview on DVP Settlement across Years
- 37 -
Sell Dominated OTC Market
By the end of 2006, there were 1.931172 million investors on the over-the-counter
(OTC) market, more than doubled or to be specific, a rise by 109.54% over the previous
year. The yearly OTC transactions totaled a number of 5.98 trillion with an overall settlement
volume of 4.279 billion RMB, down by 23% and 34.84% respectively over 2005. The
settlement volume per OTC transaction averaged 71.6 thousand RMB, down by 18% over
the previous year. The daily number and settlement volume of transactions on the OTC
market were241 and 17.2546 million RMB respectively. The monthly figures for these two
items were 4980 and 357 million RMB.
The OTC market in 2006 continued the same feature of net sell-out as in 2005, with a
net sell-out volume of 2.884 billion RMB, more precisely, with a volume of 0.697 billion RMB
through 12.594 thousand buy-in transactions and a volume of 3.582 billion RMB through
47.162 thousand sell-out transactions. The figures for different months showed that the
- 38 -
settlement volume of OTC market transactions rose steadily and slowly from January to midMarch, went down slightly from mid-March to September and soared sharply from October
to December. The changes in settlement volume, on the one hand, reflected a transfer of
capital from OTC market to the stock market; on the other hand, reflected individual
investors rapid response to the adoption of monetary policies such as the raise of interest
rates and minimum capital reserve rate exerted by the Central Bank.
Chart 18 Monthly Settlement Volume of OTC T-bond Transactions (Y2006)
The top three T-bonds transacted on the OTC market were 050013(9.807 thousand
transactions, 79.77 million RMB and accounting for 18.64% of the years commercial bank
OTC market volume ), 040004 (4799 transactions, 62.17 million RMB, accounting for
14.53%), and 060001 (12.947 thousand transactions, 53.68 million RMB and 12.54%).
Chart 19 T-bond (020015) Transaction Trend at ICBC
ICBCIndustrial and Commercial Bank of China.

- 39 -
Data Source: www.chinabond.com.cn . The red line is for sell-out dirty price, and the blue is for buy-in
dirty price.
Stock Exchange Market: Bullish Index & Shrinking Transaction Volume

The stock exchange market had an all-the-way bullish performance in 2006 but the
transaction volume of bonds shrank sharply. The index for T-bonds at the China Bond
Exchange opened at 112.06 points at the beginning of the year and closed at 114.5843
points on Dec. 29 of 2006, up by 2.5243 points or 2.25%.
The bond market continued and expanded a shrinking trend of bond transaction volume
started since 2005 with its index growing only by 2.25%, in sharp contrast to the swelling
boom of Shanghai Composite Index by 130% and that of the Shenzhen Component Index
by 131%. There was obvious teeter-totter effect between the stock market and the bond
market. At the Shanghai Stock Exchange, the yearly T-bond repos totaled 1.548734 trillion
RMB, down by 52.5% over that in year of 2005. The spot bond transaction volume reached
153.739 billion RMB, down by 40.4% over the previous year. At the Shenzhen Stock
Exchange, the yearly spot T-bond transaction volume totaled 331 million RMB, a drop by
57.7%; the volume of convertible bonds 10.547 billion RMB, a drop by 45% and the
corporate bonds 4.025 billion RMB, a drop by 35%.
- 40 -
Chart 20 T-bond Transactions at Shanghai Stock Exchange (Y2006)
Data Source: Sorted results based on information from the official website of Shanghai Stock Exchange
(Updated: Feb. 15, 2007)
- 41 -

Annual Review of China's Bond Market (2006) .1205998401765

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Annual Review of

Chinese Bond Market

------------Annual Report of Chinese Bond Market (2006)

Bond Information Department,

Macro-economy Analysis for Year 2006........................................... 5

Slowing increase of fixed assets investment, a boom in property

Money Supply: Adequate Aggregate Amount & Excess Liquidity........... 8

Bond Market Trend Analysis........................................................ 10

1. Further Rise of Already-High Chinabond Market Index............................. 10

Bond Issuance, Redemption & Interest Payment..................... 18

Yearly Aggregate Issuance........................................................................ 18

------------Annual Report of Chinese Bond Market (2006)

2. Undertaking and Distribution Conditions...................................................

Bond Balance Structure........................................................ 20

Inter-bank Market: Rapid Growth............................................................. 23

1. Spot Bond Transaction................................................................................

5. Overview on DVP Settlement........................................................................ 32

Stock Exchange Market: Bullish Index & Shrinking Transaction Volume. . .

Table 1 Distribution of Bond Redemption & Interest Payment across Months

------------Annual Report of Chinese Bond Market (2006)

Table 8 Maturity Types of Buy/Sell Repo on Inter-bank Bond Market (Y2006). . . 30

Table 10 Forward Transaction Growth in 2006 (by Date of Completion)...........

Table 11 Capital Flow of Forward Transactions in 2006 (by Date of Completion). . .

Chart 1 Year-on-year Growth Rates of Fixed Assets Investment

Chart 2 National Real Estate Climate Index

Chart 4 Year-on-year Growth Rates for M0

Chart 5 Deposits & Loans of Financial Institutions

Chart 6 General Trend of Chinabond Index (2006)

Chart 7 Money Market Interest Rate (2006)

Chart 8 Comparison of Inter-bank T-bond Yield Curves at the Start/End of 2006

Chart 14 Year to Maturity Structure of Bond Balance as of End of 2006

Chart 15 Ratios of Settlement Volume at Various Markets (Y2006)

Chart 16 Ratios of Spot bond Transaction in Various Types of Bonds

Chart 17 Quarterly Overview on DVP Settlement across Years

Chart 18 Monthly Settlement Volume of OTC T-bond Transactions (Y2006)

Chart 19 T-bond (020015) Transaction Trend at ICBC

Chart 20 T-bond Transactions at Shanghai Stock Exchange (Y2006)

------------Annual Report of Chinese Bond Market (2006)

Macro-economy Analysis for Year 2006

------------Annual Report of Chinese Bond Market (2006)

Slowing increase of fixed assets investment, a boom in property

Year-on-year Growth Rates of Fixed Assets Investment

------------Annual Report of Chinese Bond Market (2006)

Date Source: National Bureau of Statistics of China

National Real Estate Climate Index

------------Annual Report of Chinese Bond Market (2006)

Hike in Consumers Price and Drop in Producers Price

------------Annual Report of Chinese Bond Market (2006)

Trend for CPI & PPI Changes from 2005 to 2006

Data Source: National Bureau of Statistics of China

Money Supply: Adequate Aggregate Amount & Excess Liquidity

------------Annual Report of Chinese Bond Market (2006)

------------Annual Report of Chinese Bond Market (2006)

Year-on-year Growth Rates for M0 M1 and M2

Data Source: National Bureau of Statistics of China

Deposits & Loans of Financial Institutions

------------Annual Report of Chinese Bond Market (2006)

Bond Market Trend Analysis

Analysis on Price & Interest Rates Movement of Chinese Bond Market

1. Further Rise of Already-High Chinabond Market Index

General Trend of Chinabond Index (2006)

Data Source: www.chinabond.com.cn

2. Money Market Interest Rates Fluctuations (from Up to Down)