China Bans Funds from Mid-Term Bonds

China's securities watchdog orderedthe nation's funds not to buy unsecured corporate debt maturingin more than a year that's traded in the interbank market,according to a document obtained by Bloomberg News. The China Securities Regulatory Commission said in thedocument it needs more time to assess whether trading volumeswill be active enough for so-called medium-term corporate debt,after the central bank this month allowed the sales. The CSRC,which regulates funds' investments, didn't say whether banks,insurers and other corporations can still buy the debt. The notes ``have relatively longer maturities and theirliquidity requires further evaluation,'' said the documentissued by the CSRC's Funds Supervisory Department on April 22.An official in the department, who asked not to be identified,confirmed the issuance of the document and declined to elaborate. Global financial companies have been forced to makewritedowns after the collapse of trading in markets for commercial paper, collateralized debt obligation guarantees andmortgage-backed securities. China's interbank debt turnover ratio, which measurestrading volume over outstanding amount, was 1.34 in 2007, said areport by the China Government Securities Depository Trust &Clearing Co., the nation's biggest debt clearing house. Thatcompares to an average turnover ratio of about 15 for the U.S.bond market, based on data on the Web site of the SecuritiesIndustry and Financial Markets Association. Low Turnover Commercial paper, offered by companies due in less than oneyear, traded at a 4.2 times ratio at the end of last year, themost liquid of all types of debt in China's interbank market. The People's Bank of China, which regulates the nation'sinterbank market, issued a statement April 12 to allow companiesto offer interbank medium-term notes from April 25. Six agenciesor companies this week priced their first issues of three- andfive-year notes under the new rules. Issuers included China Ministry of Railway and China Minmetals Corp. Previously, companies could only issue commercial paper andfunds can still buy that debt. The document added that furtherdecisions will be made after watching the sale and trading ofthe new financing tool. The central bank also simplified the debt-issuance processfor companies by shifting its approval authority to registrationat the National Association of Financial Market InstitutionalInvestors, a trade group under its supervision. Four government agencies control companies' debt sales,which are the CSRC, the central bank, the State-owned Assets Supervision and Administration Commission and the NationalDevelopment and Reform Commission. The NDRC is the approver of so-called enterprise debt, orbonds issued by state-owned firms to fund infrastructureprojects. The SASAC said April 11 it must approve any bondissues by the 150 largest companies under its control, whichinclude China Mobile Communications Corp. and China NationalPetroleum Corp.