Date
12 December 2017
Municipal bonds will allow local governments to finance important projects such as road construction. Photo: Bloomberg
Municipal bonds will allow local governments to finance important projects such as road construction. Photo: Bloomberg

China allows 10 local govts to issue municipal bonds

China has given the go-ahead for 10 local governments to sell municipal bonds for the first time, as part of a pilot scheme to diversify their financing sources, Caijing reported Wednesday.

The governments in Shanghai, Zhejiang, Guangdong, Shenzhen, Jiangsu, Shandong, Beijing, Qingdao, Ningxia and Jiangxi will be allowed to sell and repay their own debt, the finance ministry said in a statement on its website.

The local governments will be responsible for repaying their own debt. In the past, the finance ministry would sell bonds on behalf of local governments and was also responsible for repayments.

The municipal bonds, which will be sold via auctions or underwritten by banks, must have maturities of five, seven and 10 years. And the proportions of the three maturities are set at 40 percent, 30 percent and 30 percent, respectively, the statement said.

The 10 governments are required to set up an underwriter team for the municipal bonds. All underwriters have to be registered on the mainland and comply with regulations in terms of underwriting qualifications, capital adequacy ratio, solvency and net capital status. One single entity is allowed to underwrite no more than 30 percent of the total issuance.

Further, local government bonds must be rated by ratings agencies and “basic information” about the securities as well as the fiscal and economic conditions must be disclosed, according to the statement. Also, central government bonds must be used as the benchmark in pricing municipal bonds.

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JZ/JP/CG

Freelance journalist

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