Beijing has slapped a last-minute bond curb on a ground-breaking experiment to expand foreign access to its securities markets. Qualified foreign institutional investors (QFII) rules, taking effect on Sunday, in theory allow foreign investors to buy yuan-denominated A shares as well as state, convertible and corporate bonds traded on the Shanghai and Shenzhen stock exchanges. However, 'due to technical reasons, QFIIs temporarily cannot participate in state bond repurchases and the trading of corporate bonds', the Shanghai and Shenzhen stock exchanges said in trading rules issued on Sunday. The last-minute change of heart represents yet another restriction for foreign institutions already grousing about the scheme's high entry thresholds, lengthy lock-in periods and strict foreign exchange controls. Repurchases allow bond holders to borrow funds by selling bonds and agreeing to buy them back at a later date. QFIIs could still conduct spot transactions of state bonds and trade convertible bonds listed on the two exchanges, the China Securities Regulatory Commission said yesterday. However, the restriction takes a large, and perhaps most lucrative, chunk of bond business out of the QFII scheme. Chinese bonds, mostly state or treasury bonds, are considered a surer bet than the close to 1,200 A-share stocks, accounting for the lion's share of China's total stock market capitalisation of 4.26 trillion yuan (about HK$3.99 trillion) by the end of October. Foreign investors fret at the A shares' high average valuation, poor corporate governance and lack of quality research coverage. The pool of investible bonds was already small before Sunday's curb. By the end of September, only 256.5 billion yuan of treasury bonds and 27.1 billion yuan of corporate bonds were listed on the two stock exchanges. Official figures show state bond repurchases as contributing 84 per cent of Shanghai's 254.6 billion yuan state bond trading volume in October. Meanwhile, underdeveloped and far less liquid corporate and convertible bonds recorded meager turnover of 277 million yuan and 55 million yuan, respectively. China's eight successive rate cuts since May 1996 had pared long-term state bond interest to a level below those of the United States and Japan, Citic Securities analyst Li Keqiang said. However, short-term fund demand had kept interest rates of repurchase agreements high.