China's central bank has given approval for a Shanghai brokerage to become the first to issue short-term debt, opening a new funding channel for the financial sector.

Guotai Junan Securities Co. Ltd., the country's fourth-largest brokerage by net capital, would issue 1.267 billion yuan (US$153.1 million) in short-term debt in April, the Shanghai Securities News said Friday. The bills would be floated on the national interbank market.

"Guotai Junan is the first brokerage to win approval to issue short-term debt," the newspaper said. "Applications from other brokerages are currently being processed by the central bank."

The central bank, the People"s Bank of China, approved such bond issues in October as part of wider financial market reforms aimed at strengthening the financial sector. By allowing brokerages to have a fresh funding channel, the reform would help inject fresh capital stocks.

Although the money cannot go directly into stocks, it should improve brokerages�� financial condition, thereby supporting their proprietary trading and helping to prop up China"s US$420 billion markets. The nod came after regulators launched a shake-up of the sector in early 2004, when they seized control of China Southern Securities, the fifth-largest brokerage by paid-up capital.

The total value of bonds issued by brokerages couldn't exceed 60 percent of their net capital and their term must not exceed 91 days, the central bank has said.

The bonds can be issued through an auction, with coupon rates and prices set by buyers and sellers and proceeds used to help improve capital adequacy of brokerages but not for fixed assets or for direct investment in the stock markets.Enditem

Shenzhen Daily/Agencies