Beijing is weighing the introduction of a depository receipt system in the country's bond market to direct a part of the debt currently traded on the interbank market to the domestic stock exchanges.
The National Association of Financial Market Institutional Investors, a government-backed syndicate under the central bank, is leading the feasibility studies on the planned liberalisation, according to state-run Shanghai Securities News.
The move is expected to boost bond trading on the Shanghai and Shenzhen stock exchanges, as part of Beijing's efforts to create a mammoth integrated bond market to aid fundraising by companies.
The association could not be reached for comment yesterday but two people with knowledge of the matter confirmed that such a plan is being studied.
Under the depository receipt system, bond holders transfer the debt to a custodian bank, which sells them on the stock exchanges.
The new system would help the regulators integrate the two domestic bond markets, analysts said.
"It will only be a small step but it will be a move to test the waters," said Gu Weiyong, the chief investment officer at Ucon Investment Management. "It remains to be seen whether it manages to increase the liquidity of bond trading on stock exchanges."
The depository receipt system will not be launched until it receives approval from the State Council, according to the Shanghai Securities News.
At present, the Shanghai-based interbank market plays a dominant role in bond trading. Some 22.2 trillion yuan (HK$27.3 trillion) of treasury and corporate bonds are traded on that market, says Chinabond, the country's bond clearing house.
Individual investors are barred from buying debts on the interbank market, where only institutions such as banks, brokerages and non-financial companies are allowed to take part in trading. Retail investors can only buy bonds listed on the two stock exchanges.
Corporate bonds worth 449 billion yuan are listed on the two mainland exchanges.
Beijing is determined to expand the bond market as the mainland economy grows rapidly.
Guo Shuqing, the chairman of the China Securities Regulatory Commission (CSRC), is one of the strongest advocates of a bigger bond market.
In early June, the Shanghai exchange launched trading of the mainland's first junk debt, or high-yield bonds issued by small private firms, just seven months after Guo - formerly the chairman of China Construction Bank - took charge of the securities regulator.
Beijing has been considering integrating the bond markets while simplifying approval procedures for companies seeking debt issuances.
It was speculated that the CSRC would be given a bigger say in developing the bond market as the central government aims to encourage more cash-hungry companies to raise capital via the two stock exchanges.
The CSRC also plans to allow foreign companies to sell yuan-denominated bonds on the Shanghai exchange.
The mainland's bond market is off-limits to overseas firms at present.
Beijing began a pilot scheme in 2005, allowing a handful of foreign financial institutions to offer so-called panda bonds on the interbank market.