The People's Bank of China, the central bank, intends to gather feedback on implementation of the short sales system from institutional players in the bond market, which is scheduled for next Wednesday, reported Shanghai Securities News yesterday.

The move to introduce the short sales system is part of efforts by the Chinese government to boost the bond market, which is also expected to see a flood of government treasury bonds and corporate bonds this year.

The Shanghai and Shenzhen bond markets trade corporate and treasury bonds. In April, the transaction value in the bond markets hit 1.39 trillion yuan (US$167.47 billion).

Short sales allow buyers to make money from selling the bond they bought and then buying back the bond at a lower price.

Analysts said this move could turn out to be a two-edged sword.

"On the one hand, it can result in more liquid trading and investors. But on the other hand, the market might come under heavier selling pressure," said Wei Wei, an analyst at West China Securities Co Ltd.

Presently, the market operates a repurchasing system whereby if a bond holder is strapped for cash, he can sell the bond. But the buyer cannot sell the bond until the date for the seller to repurchase it at a previously agreed price arrives.

Meanwhile, the China Securities Regulatory Com-mission is also contemplating a plan to permit the country's brokerage firms to sell bonds to satisfy their thirst for capital.

(Shanghai Daily June 5, 2003)