The Shanghai Stock Exchange SSE said on Friday it is tightening scrutiny over corporate bond issuance, and has punished a brokerage for lax duediligence in bond underwriting.

The move comes after Chinese exchanges strengthened inspections on initial public offerings IPOs, as regulators seek to limit financial risks while promoting growth of Chinas capital markets.

China has about 4.5 trillion of outstanding corporate bonds, traded on the countrys exchanges and the interbank market.

SSE, Chinas main exchange for corporate bond trading, said it has launched onsite inspections on select bond issuance applicants with a focus on robustness of due diligence by underwriters.

The bourse said in a statement it publicly censured metal products maker Ningxia Yuangao Industrial Group Co for fake and inadequate disclosure ahead of its default, and sent warning letters to its underwriter Huaxi Securities Co and its law firm.

Ningxia Yuangao could not be reached immediately for comment. Huaxi Securities said it had nothing to add to what the SSE said.

China is stepping up reforms of its capital markets. It has adopted a U.S.style registration system for securities issuance on SSEs Nasdaqstyle STAR Market, as well as SSEs corporate bond market.

But signs of lax duediligence by underwriters led to regulators tightening screws on IPOs late last year. Over 100 companies have suspended their IPO process since December, many withdrawing applications voluntarily.

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