CHINA should open up its sheltered local debt market to foreign and retail investors to help shore up market demand and liquidity, Bai Weiqun, vice president of China Central Depository & Clearing Co. (CCDC), said Tuesday.

    Bai told a financial forum that banks currently buy more than 90 percent of bonds issued by local governments, which meant liquidity of local government debt is “close to zero.” To change that, China should “open up the local debt market to foreign and retail investors,” he said.

    Central bank officials have said that some qualified foreign investors are permitted to buy local government bonds.

    On Monday, Jiangsu Province held the first auction of the year for municipal bonds in China, achieving a yield just above sovereign debt. Previously, the auction had been delayed for three weeks with no official explanation.

    Bai said that he was confident that local governments will be able to sell 1 trillion yuan (US$161 billion) worth of new bonds under a debt-swap program by the end of August — in line with the official deadline.

    Local governments will also be able to sell a further 600 billion yuan bonds under the government budget this year.

    Banks will be allowed to use local bonds as collateral for securing short-term loans from the central bank via repo agreements and other lending facilities.

    Bai said local governments have “resources,” including offering fiscal deposits and collaboration on local projects to attract bond buying from banks. (SD-Agencies)