China launches exchange for fast growing commercial paper market

REUTERS: China launched a platform for centralized commercial paper trading yesterday to promote and better regulate a 100 trillion yuan (US $14.54 trillion) market that is being increasingly tapped by small businesses to meet short-term financing needs.

The Shanghai Commercial Paper Exchange Corp Ltd, overseen by China’s central bank, is the government’s latest effort to improve its financial infrastructure, and will help consolidate a fragmented market that has seen a series of scandals in recent years.

“China’s CP market has been growing rapidly, and is playing a positive role in corporate financing and forming a multi-layer financial system,” Zhou Xiaochuan, governor of the People’s Bank of China (PBOC), said in a congratulatory note, which was read out at the launch event.

He said the exchange “will boost transparency and efficiency of the market...and help ward off risks. It will also improve the mechanism of macro-management, and improve the channel for monetary policy transmission.”

China’s commercial paper market has expanded quickly in recently years as the financial instrument, widely used in business transactions, has become an important short-term financing tool for small firms as they struggle in a slowing economy.

In 2015, commercial paper trading volume in China’s financial system jumped 68 percent to 102.1 trillion yuan, according to central bank data. Small- and medium-sized companies accounted for two-thirds of banks’ acceptance bills issued that year.