CHINA'S rapid growth of treasury bond issues could have a 'crowding-out' effect on the business sector which is striving to secure scarce funding for development, says a Chinese securities regulator.
The problem was not only an increasing burden on the government because of interest payments, said Bei Duoguang, deputy director of China Securities Regulatory Commission's (CSRC) international operations department.
It also led to competition of funding between the government and business sector, especially private firms, he added.
'If the government has access to more of these funds, then businesses will have less.' China revived treasury bond issues in 1981 and the debt instrument is becoming an increasingly important source of the its funding.
Mr Bei said that, based on the current growth rate, annual issue would exceed between 300 billion yuan (about HK$279 billion) and 400 billion yuan by the end of the century.
This year, the Ministry of Finance (MOF) plans to issue 150 billion yuan in treasury bonds to finance its budget deficit. Last year's issue was 100 billion yuan. Economists warned that China was likely to fall into a vicious cycle in which it issued new debts to service previous debt and interest payments.
Mr Bei said there would be a crowding-out effect on short-term funds by long-term funds, in light of the latter's higher interest rate.