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People's Daily Online>>China Business

Direct debt for local govts

(China Daily)

09:53, October 21, 2011

BEIJING - The Ministry of Finance has launched a trial program to allow local governments to issue debt directly, easing concerns of possible default while offering new investment channels for private capital.

The provinces of Zhejiang and Guangdong and two municipalities - Shanghai and Shenzhen - will be allowed to issue three- and five-year bonds, a statement on the ministry's website said on Thursday.

The proceeds of local government bond sales will be kept in a special account at the finance ministry, which will oversee the payment of interest and principal, it said.

Since the central government will oversee the payment of interest and principal, the issued debt will be seen as guaranteed by the State, said Gang Meng, director of the rating committee of Dagong Global Credit Rating Co Ltd. "If a rating is required, it should be triple-A," he told

However, such a guarantee could lead to the "moral hazard" problem, said Xu Xiaonian, an economics and finance professor at China Europe International Business School. "Local governments would tend to borrow more regardless of their repayment abilities," he said at his real-name micro blog.

The move comes amid increasing concerns that the accumulation of local government debt poses the risk of default. Local authorities borrowed heavily to help finance China's 4 trillion yuan ($627 billion) stimulus package after the global economy slumped in 2008.

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YgVOmrndWdsa at 2011-11-0865.197.242.*
Good report, please keep going on.

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