China changes Budget Law to relax rules on local government bond sales

PUBLISHED : Monday, 01 September, 2014, 5:14am
UPDATED : Monday, 01 September, 2014, 5:14am

The mainland's top legislature passed an amendment to the Budget Law yesterday, paving the way for more local governments to sell bonds directly to raise funds for public projects.

Under State Councilapproved quotas, provincial-level authorities will be able to sell debt to invest in such projects but bond sales to finance day-to-day outlays will still be off-limits, along with all forms of credit guarantees to individuals or entities, according to the National People's Congress's Standing Committee.

City- and county-level authorities, which are the most cash-strapped, will still not have access to the funding option.

Finance Minister Lou Jiwei said the revision set out a legal framework to oversee local government debt and "solved the problem of borrowing money" for local administrations.

He said local governments had made some "new borrowings and repayment of old debt, but the overall size has not expanded significantly. The overall risks are under control."

The Politburo approved a general plan on June 30 to change the existing fiscal and tax system as part of broad reforms mapped out at the Communist Party's Third Plenum in November.

Priorities included improving supervision of official budgets and building a modern budget process. The key tasks are expected to be completed by 2016.

Industrial Bank senior economist Lu Zhengwei said local government financing vehicles used to be the major tool for regional authorities to raise capital but they were usually opaque and irregular.

Lu said the changes would help local governments raise funds through debt in a more standardised way.

The changes would also force the authorities to integrate debt into one overall provincial-level debt platform, improving oversight of fund-raising activities.

The law was initially passed in 1994 and banned local governments from selling bonds.