China's debt market: Evolution, regulation, and global integration

Abstract

This review article for the Pacific Basin Finance Journal's Special Issue on the Chinese Capital Market examines the literature on China's debt markets. We review the development of the debt market from a centrally controlled system to a multifaceted framework, including government debt, corporate bonds, bank loans, and alternative finance. We analyze the size, roles, and economic impacts of these instruments and evaluate the effects of major institutional reforms—such as interest rate liberalization, debt-swap programs, and enhanced regulatory oversight—on credit allocation and risk management. The review incorporates empirical and theoretical evidence on local government financing vehicles, market segmentation, shadow banking, and fintech developments. Although recent reforms have improved market transparency and efficiency, issues such as fiscal sustainability, credit misallocation, and systemic risk remain. The study provides insights for policymakers and scholars, highlighting the impact of state policies and regulatory changes in integrating China's debt market into the global financial system and identifying areas for future research.