Bond sales intended to replace heavy reliance on special borrowing vehicles

China will allow 10 provinces and cities to make direct bond issues starting this year, a move that financial experts said might signal full rights for all local governments to issue debt to support the urbanization drive.

Local governments that will be allowed to sell bonds include those in the cities of Beijing, Shanghai and Shenzhen, wealthy eastern provinces such as Zhejiang and Jiangsu, and two central and western provinces, The Wall Street Journal reported on Monday, citing an anonymous source.

A source with the Ministry of Finance confirmed the report to China Daily, saying that the ministry will set a ceiling for each government, but he declined to give further details.

The central government will announce the plan later this month, and bonds will likely be issued in early July, The Wall Street Journal reported.

The reported plan is in line with a move last month, when the national legislature proposed a draft amendment to the Budget Law, suggesting that local governments should be able to sell municipal bonds under narrow parameters.

The current Budget Law, enacted some two decades ago, bars most debt issues by local governments. Even now that the draft amendment has been proposed, there are strong fears among policymakers and academics that some local administrations don't have the ability to manage their own funds. Whether the amendment will be passed remains unclear.

Given these concerns, the reported plan is being seen by some analysts as an effort by the Ministry of Finance to give more legitimacy to the amendment by conducting experiments in more places before lawmakers make a decision.

Jia Kang, director of the Research Institute for Fiscal Science under the Ministry of Finance, said he didn't know the details of the plan. But he added that in general, the plan to allow more local governments to issue debt on their own "conforms to the policy trend".