| China's government bond market is booming. In July alone, some Rmb 220 billion ($26.5 billion) worth of bonds changed hands on the Shanghai Stock Exchange bringing the total turnover for the year to Rmb557 billion. In addition, this year there have been some Rmb175.2 billion ($21 billion) in new issues bringing the total value of bonds issued by China's ministry of finance up to Rmb570 billion. Modest by international standards, perhaps, but impressive in a country where only three years ago the government funded most of its deficit by printing money. The driving force behind the boom has been an interest rate cut by the People's Bank of China (PBOC), the central bank, on May 1 the first in five years. Dai Xianglong, the bank's governor, hinted that if inflation remained under control a further cut would follow later in the year. Banks and securities houses seem confident that, with China's bond market now growing rapidly in size, the underwriting of and trading in government bond issues will be a profitable line of business in the future. In the process, the system is being reformed from one where bonds were non-tradeable and distributed by administrative placement to one which resembles international practice. |