TURNOVER EXCEEDED RMB TEN TRILLION YUAN AND THE MARKET GREW MORE MATURE AND RATIONAL

In 2002, the turnover of the national interbank funding & bond trading system set a new record. The interbank market witnessed 79,819 deals with a total turnover of RMB11.840 trillion yuan, which was 141.37% more than that of 2001 and exceeded China's annual GDP. A mature and rational interbank financial market is coming into being.

The weighted rate in the funding market plummeted while overnight funding grew significantly

In 2002, the funding market hosted 5,363 trade deals with a turnover of RMB1.211 trillion yuan, up 49.80% over last year. Due to the excess of funds supply, the monthly weighted rate declined from 2.368% in January to 2.017% in July. It did not inch up until the central bank led interest rates through open market operations in July. In December, the weighted rate climbed to 2.227%.

Funding maturities in 2002 tended to be shorter than in the past. Compared to 2001, overnight turnover increased by 49.80%, accounting for 16.64% of total funding. The sum of overnight, 7-day and 20-day was 95.33% of the total, 1.55 percentage points more than that of last year. The turnover of 120-day increased significantly under the influence of the central bank's open market operations. Other varieties witnessed little change.

The repo market was brisk and the weighted rate fluctuated significantly

In 2002, the brisk repo market held 67,811 deals with a total turnover of RMB10.189 trillion yuan, up 153.87% year-on-year. Due to the PBC's interest rate cut at the beginning of the year, the monthly weighted rate of the market declined from 2.141% in January to 1.958% in March, and remained stable until August. Influenced by the open market operation, the repo rate climbed rapidly, and reached 2.310% in December as a result of the increasing demand for funds at year end.

The turnover of all varieties in the repo market, especially the 14-day and four- to six-month types, grew remarkably in 2002. The soaring of short-term repos indicated the strengthened function of the interbank market as a place for banks to adjust short-term positions; while the drastic rise of medium and long-term repos mainly resulted from open market operations in the second half of the year.

While the turnover of bond trading rose remarkably, the price experienced a seesaw trend

The bond market in 2002 experienced a seesaw trend. In the first half of the year, promoted by interest rate cuts, the market flourished with rising prices and increasing turnover. The monthly weighted yield declined from 3.002% in January to 2.310% in July. In August, the repo rate went up under the influence of the open market operations of the PBC. Since then, the market went down with declining prices and turnover. After November, with a stabilizing market rate, the bond market recovered. The interbank bond indexes in 2002 reflected the situation. The Interbank Government Bond Index reached a high of 1,141.69 and a low of 1,091.82, and closed the year at 1,141.59. The Composite Interbank Bond Index ranged between 1,123.87 and 1,079.58, closing the year at 1,122.87.

The bond market, even though it experienced fluctuations, maintained a rapid development. The total turnover of the year increased more than five-fold compared with 2001. The monthly turnover set a new record of RMB72.88 billion yuan in June, and the daily turnover on June 18 hit a record high of RMB8.36 billion yuan, which was almost the sum of one or two months in 2001. With an expanding size, the market envisioned bright prospects.

Institutional funding

The basic structure of inter-institution capital flow did not change in 2002. The amount, however, surged and transactions were increasingly active. Urban credit cooperatives, financial leasing companies and trust and investment companies entered the market as new members. State-owned commercial banks were the only net lenders while urban commercial banks were the biggest net borrowers. Rural credit cooperatives, the most energetic participants, saw a growth of 409.97% in borrowing. The poor performance of the capital market in 2002 led to a sharp increase in lending by the two former major borrowers---securities companies and investment funds. The lending of securities companies increased by nearly ten times that of 2001.

(by Chen Lifeng)