(Reuters) - The National People's Congress approved allowing some local governments to issue bonds directly, a reform that could help stabilize government financing by creating the country's first municipal bond market, parliament announced on Sunday.
The National Audit Office estimated that local governments owed 17.89 trillion yuan ($2.91 trillion) by the end of June and said nine Chinese provinces had failed to pay back some 800 million yuan of debt due in March.
As economic growth slowed, that situation apparently caused regulators to move faster on developing alternative funding channels for local governments. Beijing has been struggling to find a way to make local governments more fiscally responsible, after they ran up massive debt in the years following the global financial crisis.
Economists worried that systems currently in place encouraged local officials to over-invest without regard for returns, in the name of supporting GDP growth at all costs. Regulators have already experimented with allowing local governments to issue debt directly.
The amendment to the country's budget law that parliament passed would simply certify the pilots now underway and allow for their later expansion.
The Ministry of Finance has granted 10 local governments quotas to issue a combined 109.2 billion yuan of municipal bonds this year, a relatively insignificant amount.
Governments in Shanghai, Zhejiang, Guangdong, Shenzhen, Jiangsu, Shandong, Beijing, Qingdao, Ningxia and Jiangxi are included in the pilot scheme. Other governments are prevented from directly issuing debt, relying on the Ministry of Finance to issue and redeem bonds on their behalf.
reuters.com
The National Audit Office estimated that local governments owed 17.89 trillion yuan ($2.91 trillion) by the end of June and said nine Chinese provinces had failed to pay back some 800 million yuan of debt due in March.
As economic growth slowed, that situation apparently caused regulators to move faster on developing alternative funding channels for local governments. Beijing has been struggling to find a way to make local governments more fiscally responsible, after they ran up massive debt in the years following the global financial crisis.
Economists worried that systems currently in place encouraged local officials to over-invest without regard for returns, in the name of supporting GDP growth at all costs. Regulators have already experimented with allowing local governments to issue debt directly.
The amendment to the country's budget law that parliament passed would simply certify the pilots now underway and allow for their later expansion.
The Ministry of Finance has granted 10 local governments quotas to issue a combined 109.2 billion yuan of municipal bonds this year, a relatively insignificant amount.
Governments in Shanghai, Zhejiang, Guangdong, Shenzhen, Jiangsu, Shandong, Beijing, Qingdao, Ningxia and Jiangxi are included in the pilot scheme. Other governments are prevented from directly issuing debt, relying on the Ministry of Finance to issue and redeem bonds on their behalf.
reuters.com
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