Set free: Chinese 'Panda' bonds

It took five years and approval from five government agencies, but last month the International Finance Corp. finally succeeded in issuing a local-currency bond in China, becoming the first foreign borrower to do so.

The IFC's ten-year, 1.1 billion yuan ($140 million) "Panda bond," which carries a coupon of 3.4 percent, is designed to help open the local bond market to privately owned companies starved of funding by risk-averse state-owned banks.

"Developing the domestic bond market is critical for China," says IFC treasurer Nina Shapiro, 57. "There's a lot of liquidity, and it's not being tapped. The top-tier companies get overbanked; other private borrowers have trouble accessing funds."

The IFC raised the funds to lend in turn to three domestic companies. It hopes to demonstrate how the market can efficiently allocate capital. Still, getting regulators comfortable with pricing bonds for nongovernment credits took five years and required Shapiro to visit China half a dozen times in two years.

"What really is critical for any market is a credit culture: being able to price risk and reward. If all you're going to do is take government bonds, it's never going to happen," says Shapiro. She hopes that by easing the issuing process, the IFC will blaze a trail that private companies can follow: "When others come they won't have to start from zero and go through all the same requests."