Pilot pre-issuance trading of government bonds began Thursday on the Shanghai Stock Exchange (SSE), according to information issued by exchange authorities, a step situated amid ongoing government efforts to develop China's treasury market and deepen market-oriented reforms in the financial sector.

On Tuesday the SSE announced that pre-issue trading would run from Thursday to Tuesday, with the seven-year government bond to be the first instrument up for transaction. Official bidding is set to begin Wednesday, with the bond carrying a benchmark rate of 3.992 percent.

Current regulations allow qualified market participants to buy and sell Chinese treasuries among themselves up to four working days prior to the start of bidding.

"Pre-issuance trading will help improve price discovery and provide more liquidity within the government bond market," Shi Lei, a senior bond analyst from Ping An Securities, told the Global Times Thursday.

In many countries with mature financial markets, pre-issue trading of government bonds is a commonly employed mechanism used to facilitate the marketization of treasury interest rates, say experts.

Market regulators and financial authorities in China have been pushing forward policies aimed at dismantling administrative controls over interest rates since the start of this year.

In line with this trend, relevant departments and ministries rolled out regulations which paved the way for Thursday's pre-issuance trading. In March, the Ministry of Finance, the People's Bank of China and the China Securities Regulatory Commission jointly issued a notice which laid out basic principles pertaining to such trades.

In late September, the SSE and the China Securities Depository & Clearing Co (CSDCC) issued more detailed guidelines and restricted pre-issuance transactions to securities brokerages, banks, fund management companies and insurance firms. Provisions were also made to include qualified financial institutions and professional investors.

"Pre-issuance investors in government bonds should possess a high degree of knowledge and experience and be capable of facing and controlling their risks," Shi said.

In order to minimize the potential downside risks during the pilot trading stage, regulations released by the SSE and the CSDCC last month also introduced price range controls and set a limit on the market scale.