National lawmakers have made a policy U-turn, barring local governments from directly issuing bonds as concerns mount over their runaway debts.
The draft revision says local governments cannot issue bonds unless otherwise stated by the State Council. The U-turn came in the second reading of the budget law and was discussed by the standing committee of the National People's Congress (NPC) yesterday in a panel meeting.
The revised version is different from the first reading at the end of last year, which allowed local governments to issue debt, subject to a cap.
At present, local governments are banned from directly selling bonds.
With local government debt piling up to about 10.7 trillion yuan (HK$13.1 trillion) by the end of 2010 - or 27 per cent of gross domestic product - Beijing has since last year been taking steps to allow debt financing for some provinces and municipalities.
The move highlights the central government's concern over the solvency of its indebted local governments - and the implications for social stability at a time when the European debt crisis threatens to put the brakes on China's economy.
Hong Hu, a deputy director of the NPC law committee, said at the panel meeting that local government debt deserved 'high attention' as it had risen substantially in recent years, China News Service reported.
