CHINA is opening its 26.31 trillion yuan (US$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 yesterday 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, ChinaBond data show.

    China is giving the bond market a greater role in financing and pricing risk in the world’s second-largest economy. 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 Oct. 31, ChinaBond data show. Similar-maturity, top-rated corporate notes pay 4.27 percent while China’s central bank’s 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 was investigating brokerages for possible bribery with a focus on bond underwriting, the 21st Century Business Herald reported June 17. (SD-Agencies)