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People's Daily Online>>China Business

China allows local govts to issue bonds

(People's Daily Online)

16:17, October 21, 2011

Edited and Translated by Han Shasha, People's Daily Online

The Ministry of Finance said on Oct. 20 that local governments in Shanghai, Zhejiang, Guangdong and Shenzen will be allowed to issue bonds on a trial basis.

According to China's Budget Act, local governments are not allowed to issue bonds. Some analysts said that the move comes amid growing concerns about the ability of the local governments to repay their debts.

It marks the first time that local authorities have been allowed to issue bonds. Previously, the central government floated the bonds on behalf of local authorities.

Ma Caisen, professor from the Nankai University said that it is quite a hasty decision to allow local authorities to issue bonds before the amendments of the Budget Act.

Xu Xiaonian, professor of economics and finance at China-Europe International Business School also said that if the local debts are paid by the central government, China may face "moral risks" from the local governments, who may focus more on borrowing but not repaying, which may finally become a debt crisis.

It is noteworthy that the trial cities are all in coastal areas where the real estate markets are overheating. And many local governments depend on land auctions for revenue. Some analysts believe that the move is to help the local governments to get out of the fiscal difficulties when the Chinese government is tightening credit in the hopes of taming a property bubble.

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mcYRWSVM at 2011-11-08173.208.110.*
Good report, please keep going on.
  

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