Non-financial firms allowed to trade in interbank bonds

China is opening its 26.31 trillion yuan ($4.3 trillion) interbank bond market to non-financial firms after tightening trading rules following a crackdown on illegal transactions.

Qualifying participants will require minimum net assets of 30 million yuan and use a separate trading platform to banks, brokerages and insurers, according to an Oct 17 statement posted on Monday on the website of the National Association of Financial Market Institutional Investors.

The amount of bonds outstanding in China doubled in the past five years to 28.27 trillion yuan, of which 93 percent was accounted for by the interbank market, data from ChinaBond.com.cn show.

Wider investor participation may help lower companies' borrowing costs and curb demand for shadow-banking products that regulators are seeking to clamp down on.

"The re-opening to the non-financial institutions should have a positive market impact," said Li Liuyang, chief financial market analyst at Bank of Tokyo-Mitsubishi UFJ (China) Ltd in Shanghai.

"After the crackdown, the new rules will help attract more investors. The expansion of the demand side will lay the foundation to establishing more financing channels for companies as the authorities promote direct financing."

The yield on one-year sovereign bonds declined 87 basis points this year to 3.36 percent on Friday, ChinaBond data show. Similar-maturity, top-rated corporate notes pay 4.27 percent while the PBOC benchmark rate is 3 percent.

China has been tightening regulation of its interbank bond market since opening it to qualified foreign institutional investors in 2011. Last year, the central bank was said to have asked participants to examine trading histories as it cracked down on illegal transactions.

The Central Commission for Discipline Inspection of the Communist Party of China was investigating brokerages for possible bribery with a focus on bond underwriting, 21st Century Business Herald reported June 17. It didn't give further details. Market probes may lead to a slowdown in the issuance of corporate notes, China Chengxin International Credit Rating Co, a Moody's Investors Service joint venture, said in August.

China's bond sales totaled 4.74 trillion yuan in the first nine months of this year, up from 4.52 trillion yuan a year earlier, China Central Depository & Clearing Co data show. Standard Chartered Plc estimated total debt accounted for 251 percent of the nation's gross domestic product as of June.

There were 7,105 interbank bond market members as of Friday, of which 148 are non-financial institutions, according to data posted on the National Interbank Funding Center website.

"To allow non-financial companies to invest in the interbank bond market would help further increase market participants," said Yang Feng, a bond analyst in Beijing at CITIC Securities Co, the nation's biggest brokerage. "To give them a separate platform to trade would also prevent any market manipulation or other irregularities."

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