What Debt Crackdown? China's Banks Are Binging on Bonds

Sales of negotiable certificates of deposit -- a key funding source for medium and smaller banks -- surged 49 percent from a year ago in the third quarter to a record 5.4 trillion yuan ($819 billion), according to data compiled by Bloomberg... China's deleveraging looms large in debt-market dynamics these days, with government bond yields at two-year highs and the one-week Shanghai Interbank Offered Rate not far from the most expensive since 2015. Still, officials are also trying to keep the economy humming: they've tweaked the rules governing NCD issuance, but haven't shut off the taps as credit growth accelerates.

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The certificates -- which have been used by lenders to finance purchases of each other's wealth-management products -- came under regulatory scrutiny last year, when they started to serve as a source of leveraged bond investments for some institutions. In August, the People's Bank of China asked lenders with more than 500 billion yuan of assets to classify the debt as interbank liabilities from next year. This is seen effectively capping sales.