May 15 (Bloomberg) -- China’s foreign currency bond market has “huge potential” after the country’s biggest oil producer became the first non-financial company to sell domestic dollar notes, People’s Bank of China Vice Governor Liu Shiyu said.

China National Petroleum Corp.’s sale this week “has significant meaning” and opens a market that will help “companies with sizeable scale or good potential to raise funds at lower costs,” Liu said in a statement posted on the bank’s Web site yesterday.

Beijing-based CNPC sold $1 billion of three-year floating- rate notes on May 12, according to data compiled by Bloomberg. The notes, part of a $3 billion borrowing plan to fund overseas projects, were priced to pay 62 basis points more than the London interbank offered rate, the data show.

Chinese regulators this year allowed foreign banks to trade corporate bonds and lifted a ban forbidding bond trading on stock exchanges as the government seeks to spur growth in the world’s third-biggest economy. Foreign direct investment into China fell 22.5 percent to $5.89 billion in April, the seventh monthly decline from a year earlier, the commerce ministry said in Beijing today.

The People’s Bank said at its annual works conference in January that it would encourage sales of foreign currency debt.

Such bonds will help “companies to implement China’s overseas goals” and will “add variety to institutional and individual investors in China,” Liu said.

To contact the reporters for this story: Tom Kohn in Hong Kong at tkohn@bloomberg.net; Theresa Tang in Hong Kong at ttang3@bloomberg.net

Last Updated: May 14, 2009 23:31 EDT