Going from this quote by Bryan Collins of Fidelity on China's economy:
One of the nice things we see from the development of a domestic bond market is that it starts the process of pricing capital better. And when you price capital better, you get a much better chance of that capital being allocated more efficiently.
I can certainly follow Collins' logic, but I don't understand the economic theory that underpins this logic.
Question
Why is it exactly that a developed bond market leads to more efficient allocation of capital?