China's local government debt amounted to 17.9 trillion yuan in mid-2013, up from 10.7 trillion yuan at the end of 2010, according to a national audit. "It is a general trend to open up the local government bond market," China Chengxin said in a report.
However, some experts raised concerns over the accuracy and effectiveness of China's credit rating companies, citing inflated ratings given to bond issuers.
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Liu Shangxi, deputy director of the Research Institute for Fiscal Science at the Ministry of Finance, said another problem is the mismatch between the governments that are eligible to issue bonds and those that need the money.
"County-level governments have the largest demand for financing, yet they don't qualify for debt issues. Their financing still largely relies on the provincial - and municipal-level governments. That's not much different from the old system under which the central government essentially guaranteed local government debt," Liu said.
Liu also said that the conditions are not yet ready for introducing credit ratings of local government.
He said that it's not even clear how to measure the asset values of local governments, and as there are no balance sheets available for local governments, there's no way to carry out accurate credit evaluations.
In addition, he said, there have been cases "where local governments weren't satisfied with the ratings" they received and forced the ratings agencies to upgrade them.
Given all these factors, Liu suggested, local government financing should also explore more innovative means of raising money such as public-private partnerships that would channel more private capital into government projects.
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