China Permits More Local Governments To Issue Bonds

Two years after starting a trial program allowing local governments to issue bonds directly, China is allowing two more provinces to the privilege.

Jiangsu and Shandong province can now issue their own local government bonds, in addition to the original four provinces and cities of Shanghai, Shenzhen, Zhejiang and Guangdong province, according to the Ministry of Finance.

The ministry said that bond issuance by local governments must not exceed quotas set by the State Council. Media reports say that local governments in the trial are allowed to issue bonds totaling 70 billion yuan this year.

These bonds can have maturities of three, five and seven years. No governments are allowed to issue any type of the three maturity bonds more than 50% of its total debt quotas.

Concerned that local governments couldn’t manage their finances responsibly, the central government has long issued bonds on behalf of all levels of governments.

But a dramatic jump in local government debt issuance after the global financial crisis is causing worries that some will become non-performing.

The National Audit Office said in June that 36 local governments had taken on debt totaling 3.85 trillion yuan ($624.6 billion) as of the end of last year, up 12.9% from the end of 2010.

 
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