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A well-regulated bond market could help the Chinese government fund itself, help fund companies that could create the jobs China so desperately needs, and enable companies, pension funds, insurance funds, and social security funds to match their assets and liabilities properly. This would help stabilize China both financially and socially. Because China now has significant government debt, combined with a history of not letting that debt get out of control, it has the potential to develop a sophisticated government bond market that could become the foundation both for a large Chinese corporate bond market and, when the currency is fully convertible, for a regional bond market. The Asian crisis teaches us not only that Asian countries need bond markets to stabilize their finances but also that bond markets will be unstable without painful reforms to ensure rigorous accounting, transparency, strong bankruptcy and foreclosure laws, an effective legal system, and bank accountability.

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