Local govt bonds are poised for approval
Updated: 2014-04-22 07:50
By ZHAO YINAN/ZHENG YANGPENG (China Daily)
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State Council would set quota system on debt, but only under strict conditions
China may allow local governments to sell municipal bonds under narrow parameters in a move to regulate their borrowing and reduce systemic risk.
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Except under these conditions, local governments may not issue bonds or provide a guaranty to any institution or individual.
Officials found to be directly responsible for illegal bond issues will be dismissed, the draft said.
It's the first time for the nation to formulate explicit rules and supervisory principles for local government bond sales.
The current Budget Law, which is some two decades old, bars most debt issues by local governments.
But governments at all levels have managed to raise funds in recent years through bank loans or via local government financing vehicles to pay for a plethora of infrastructure projects.
A survey by the National Audit Office found that as of June 30, 2013, local government debt and contingent liabilities surged to about 17.89 trillion yuan ($2.9 trillion), a 67 percent rise from the previous estimate of 10.7 trillion yuan at the end of 2010.
Much of this debt, especially that raised through LGFVs, poses a systemic risk because of its opacity, said Liu Jianwen, head of the Fiscal and Economic Law Research Center at Peking University.
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