China signals it will allow local governments to directly sell bonds
The mainland is getting closer to allowing local governments to directly sell bonds for the first time, the National Development and Reform Commission signalled yesterday, while adding that opaque financing vehicles thought to have built up trillions of dollars of high-risk debt would be phased out.
In a sweeping statement, the NDRC, the mainland's top economic planning agency, said Beijing would deliver stable economic growth while pursuing reforms.
The promise to stay focused on reforms could appease critics who worry the central government's enthusiasm for bringing about painful changes may be on the wane as the mainland economy stumbles. The uncertain outlook for the economy was underscored yesterday by remarks from a senior trade official, who said the mainland had a tough road ahead in meeting its 7.5 per cent trade growth target this year.
The NDRC said in a statement on its website that enacting change was a "first priority" for the government and it hoped to make breakthroughs in key areas this year.
It said the mainland would create a financing system for local governments that would let the sale of municipal bonds be a major source of funding and Beijing would set limits on the amount of debt that could be raised by local governments.
Financing vehicles, set up by local governments to get around laws that prohibit them from borrowing directly from any parties, would be phased out.
"The policy has been talked about several times, so the market is now waiting for details, in particular how the quotas will be set," said a senior trader at a major state-owned bank in Shanghai. "I don't think the central government will immediately let local governments issue lots of bonds and endanger the overall financial system."
Mainland media reports yesterday said Beijing was set to allow 10 governments to directly sell bonds.