Does anyone still question that liquidity is the main policy concern in this stage of Xi Jinping’s drive to financially reform China? Well, if there are any doubters left on how to change the way that the different debt markets are capitalized in China, Bloomberg is this morning reporting on opening up of the interbank bond markets in China to investors with more than RMB 30 million in assets.
The main effects that I can see out of this are that it opens up yet another avenue to direct liquidity towards. For institutions looking to invest money now or in the future (such as social security or pension funds) having access to a higher-yielding and more diversified market than the government bond market is a great positive. As China develops further, having this outlet for banks to draw liquidity from could help them finance during a potentially risky transition from big SOE enterprise financing to SME lending to direct capital to more entrepreneurial developments in China. It’s a pretty good piece of news for Chinese development and a better indicator of where the focus lies, but not that much more since there is little actual data to go on and model.