WSJ explains Chinese “dai chi” bonds, a repo variation

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Behind China’s Bond Selloff, a Risky Twist on the Repo Trade

Trading practice called ‘dai chi’ sprouted up in China’s long credit boom—and has helped exacerbate the bond-market rout

The turmoil at a Chinese midsized brokerage firm that exacerbated China’s recent bond market rout also highlighted a little-regulated practice that companies have used to borrow hundreds of billions of dollars and move risky assets temporarily off their books.

Called “dai chi” in Chinese — literally, holding something on someone’s behalf — the trading practice resembles a short-term loan backed by bonds, and it has boomed as China’s bond market rallied during the past three years, according to half a dozen traders and executives at Chinese financial companies who have engaged in or are familiar with the practice.

The full article is available here.

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