China to Crack Down on Local Financial Asset Bourses

(Bloomberg) -- China’s securities regulator is considering a crackdown on venues facilitating over-the-counter transactions for real estate developers and online finance firms across the country as it seeks to control risks in the world’s second-largest economy.

Under the plan, the local platforms would be banned from acting as fundraising venues for companies outside of their jurisdiction, said people familiar with the plan, who asked not to be named as the matter is private. They would also be prohibited from selling financial products to individual investors, one person said.

The plans are preliminary and subject to change, according to the people. The China Securities Regulatory Commission, which oversees the markets, didn’t immediately respond to an email seeking a comment.

Distinct from national exchanges, these small platforms have been set up across the country over the past decade by local authorities. They facilitate transactions in everything from non-performing loans to private equity, and have lately expanded into selling fixed-income investment products. There were about 70 such exchanges in 2018, A CSRC official said at a forum at the time.

“The restriction on issuance to retail investors will cut another funding source for some developers and local government financing vehicles,” said Yang Hao, a fixed-income analyst at Nanjing Securities Co.

As of late 2019, outstanding fixed-income products at these markets amounted to 852 billion yuan ($124 billion) and involved about 1.2 million individual investors, local media has reported, citing CSRC Chairman Yi Huiman. Risks are “hard to neglect,” Yi was quoted as saying at that time.

The regulator’s push calls on local governments to draw up plans for an orderly unwinding of the venues’ financing businesses, the people said. Approvals of new platforms will also be prohibited, they said.

Each province will be limited to having one such market and existing platforms should be merged, closed down or restructured to reduce the number, according to the people.

©2020 Bloomberg L.P.

With assistance from Bloomberg