Moves by the People's Bank of China (PBOC), the central bank, to tighten liquidity are making it tougher for many domestic enterprises, especially those with low credit ratings, to raise short-term financing, said Shi Yuxin, an analyst at China Lianhe Credit Rating Co Ltd.
Some Chinese enterprises have to pay a premium above the one-year loan rate, which is 7.29 percent, to borrow in the inter-bank bond market.
According to ChinaMoney, a website run by the China Foreign Exchange Trading System, a 300 million yuan bond issue on November 15 by Shenzhen-listed Tianjin TEDA Co Ltd carried a nine-month interest rate of 7.35 percent.
In another case, the rate on a one-year bond issue of 200 million yuan on Nov. 14 by Xiamen Xiangyu Group Co Ltd, a trade and logistics operator in southern China, stood at 7.34 percent.
Shi said that in China, enterprises that issue short-term debt are scored under a seven-level rating system: 3A, 2A+, 2A, 2A-,A+, A and A-, with triple A being the highest-rated.
Companies with triple-A ratings can get short-term financing at rates as low as 20 to 30 basis points more than the Shanghai Interbank Offered Rate (SHIBOR), she said. In some cases, they can borrow at below-SHIBOR rates.
When China National Cereals, Oils and Foodstuffs Corp (COFCO), a 3A company, issued 2 billion yuan in short-term bonds this July, the rate was a mere 3.5 percent, according to Shi.
"Tianjin TEDA and Xiamen Xiangyu Group only have A credit ratings, and that's one reason why their short-term rates are nearly 300 basis points higher than SHIBOR," said Shi.
The PBOC moved on Nov. 10 to increase the bank reserve ratio a half percentage point to 13.5 percent effective on Nov. 26, the ninth hike this year, in an effort to tighten liquidity.
The central bank has also raised interest rates five times this year, taking the one-year rate from 6.12 percent in March to 7.29 percent at present. Those hikes have driven up the SHIBOR and short-term bond rates.
China's short-term debt market got its start in May 2005, when the Operating Procedures for the Underwriting of Short-term Financing Bonds were released.
A total of 258.07 billion yuan (US$34.75 billion) worth of short-term bonds were issued from January-September this year, according to the PBOC. During the same period, the inter-bank debt market's total issues were valued at 2,239 billion yuan, up 74 percent year-on-year.
Peng Xingyun, a senior researcher with the Institute of Finance and Banking under the Chinese Academy of Social Sciences, told Xinhua that he expected further interest rate hikes before the end of the year.
"There are strong expectations that the central bank might further raise market interest rates, and thus the interest rate on short-term bonds could set a new high," added Shi.