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BEIJING/SHANGHAI, Jan 22 (Reuters) - German automaker Daimler AG will become the first foreign, non-financial company to issue bonds in China's domestic market, two sources close to the deal told Reuters on Wednesday.
The issuance marks an important step in China's gradual campaign to reform its financial system and could pave the way for other non-Chinese firms to tap the country's massive pool of domestic savings.
Market watchers expect robust demand for the Daimler bonds, due to the company's strong credit rating and prestigious brand.
As part of its broader reform push, Beijing has pledged to ease restrictions on the flow of investment funds into and out of the country.
Though Daimler is likely to use the funds raised from selling bonds in its Chinese operations, other foreign issuers could eventually win permission to move funds raised in China to other locations.
Previously, the only foreign entities to issue so-called "panda bonds" were state-backed financial institutions, including the Asian Development Bank, the Japan Bank for International Cooperation, and the International Finance Corp., the private-sector investment arm of the World Bank.
A few locally incorporated subsidiaries of foreign-invested firms have issued bonds in China's domestic market. But the sale by Daimler will mark the first non-financial issue by a firm incorporated outside China.
Chinese and foreign firms have also issued yuan-denominated so-called dim sum bonds in Hong Kong in recent years. Unlike domestic bonds, dim sum issues are not subject to approval by Chinese regulators.
Daimler manufactures Mercedes-branded vehicles in China through its joint venture with BAIC Motor, the passenger car unit of state-owned Beijing Automotive Group. It also imports cars manufactured abroad.
The company said last month it is preparing factories in China to build Mercedes' next generation C-class sedan for the local market.
"It's Mercedes-Benz's parent company selling panda bonds, but details like the date of the auction aren't set yet," said one of the sources, who spoke on condition of anonymity because the plan is not yet public.
Bank of China will serve as sole underwriter on the deal, the sources said.
Bonds outstanding in China's domestic interbank market, where Daimler will sell its bonds, totaled 27.6 trillion yuan ($4.6 trillion) at the end of November, central bank data shows.
Non-financial corporate bonds account for about 9.3 trillion yuan of that total, with the government and financial institution bonds accounting for the rest. Another 1.8 trillion yuan in bonds are traded on China's stock exchanges.
A Beijing-based spokesman with Mercedes-Benz declined to comment.
Bank of China declined to comment.
($1 = 6.0505 Chinese yuan)
(Additional reporting by Norihiko Shirouzu; Editing by Shri Navaratnam)