Chinese mainland stock exchanges are carrying out trials to allow individuals to buy local government bonds, in a move aimed at decreasing financing costs and improving liquidity.

The Ministry of Finance has given the Shenzhen Stock Exchange approval to issue local government bonds through a particular bond issuance system and individual investors can purchase these bonds, the exchange said on July 26.

According to the bourse, Sichuan province will be the first to issue local government bonds totaling 30 billion yuan ($4.4 billion) on Aug 1, and 12 securities firms will be underwriters.

Individual and institutional investors can subscribe during the underwriters’ distribution period, or buy them after the bonds go public.

“We are promoting individual investors to buy the bonds both online and offline, to improve the liquidity of local government bonds in the secondary market,” the Shenzhen Stock Exchange statement said.

Shanghai Stock Exchange got approval earlier in July for the bond pilot. On July 6, Zhejiang province and the Inner Mongolia autonomous region successfully issued local government bonds on the stock exchange.

On July 7, 638 individual investors in Huarong Securities bought the paper, totaling 10 million yuan, online. CITIC Securities and Haitong Securities each sold the 10 million yuan in bonds to individual investors.

Shanghai Stock Exchange said it will intensify securities firms’ training and continue to support them selling local government bonds to individual investors.

Zhao Quanhou, director of the financial research center at the Chinese Academy of Fiscal Sciences under the ministry, said carrying out the pilot could decrease financing costs of local governments.

“Previously, banks were the main participants in China for local government bond issuing,” said Zhao. “With individual investors involved, financing costs can be lower, as there are more purchasers and the bond pricing is more transparent.”

Zhao added that in many developed countries, individuals participate in purchasing local government bonds through mutual funds, which is a good practice for China to learn.

Deng Haiqing, chief economist at JZ Securities, said the participation by individuals was good for improving the liquidity of local government bonds, but it was also important to prevent risks.

“Similar to stock markets, more retail investors will bring more market fluctuations,” Deng said.

“Although the pilot will bring benefits for local governments to finance funds in the short term, market regulators should pay attention to (keeping the) market steady and investor education is important.”

China’s newly revised Budget Law clearly stipulates that local government bonds can be publicly issued through a national quota-based mechanism, a main financing channel for local governments.

Data from the Ministry of Finance showed that the quota of local government debt in 2017 was around 18.8 trillion yuan, up from 17.2 trillion yuan in 2016 and 16 trillion yuan in 2015. Last year, China’s local government debt balance was 15.3 trillion yuan, a 4.3 percent decrease year-on-year.