Six provinces and municipalities are set to become pilot areas for local governments issuing bonds, which are pending legislative approval, according to an official source. The source said the six areas included the municipalities of Beijing, Shanghai, Tianjin and Chongqing, but he refused to reveal the other two regions. The Standing Committee of the National People's Congress reviewed the State Council's proposal to allow local governments to issue bonds yesterday, indicating that the plan was well under way. The source said he was not certain whether the bonds would be issued directly by local governments or through the central government. Xinhua's Outlook Weekly reported earlier this month that the central government would sell 200 billion yuan (HK$227.42 billion) in bonds this year on behalf of local governments to help meet funding needs for the country's stimulus package. The State Council announced an ambitious 4 trillion yuan stimulus plan in November, promising massive investment in rural infrastructure, affordable housing, railways and environmental projects. But the central government was responsible for coming up with only 29 per cent, or 1.8 trillion yuan, of the money, with the rest of the burden shouldered by banks, companies and local governments. Wei Fengchun, an analyst at Jiangnan Securities' research department, said revisions to the budget law would allow local governments to officially issue bonds. Under the existing budget law, enacted in 2004, local governments are not allowed to issue debt directly. But late last week, the Ministry of Finance pledged to help the NPC overhaul the budget law to enable local authorities to issue their own bonds this year. Mr Wei said the State Council approved the idea of allowing local governments to issue bonds in the interest of helping those authorities fund their contributions to the 4 trillion yuan stimulus package. 'Evidently, local governments have little revenue to fund the stimulus package, because China's slowing economic growth and shrinking corporate margins are cutting into the tax base,' Mr Wei said. The Ministry of Finance said on Monday that China's fiscal revenues fell 17.1 per cent last month from a year earlier, compared with an increase of about 19 per cent for last year. Shenyin Wanguo Securities senior bond analyst Qu Qing said many local governments had skirted the ban on bond issues by establishing investment subsidiaries or sponsoring investment projects that issued debt. For example, Changxin county's Traffic Construction Investment issued l.5 billion yuan in corporate bonds on the interbank bond market in August to fund its construction projects. Still, Mr Qu raised doubts about the future solvency of local governments because of their shrinking fiscal revenue, dragged down by the deteriorating global economy and collapsing prices in the housing market, the authorities' primary revenue source in the past 10 years.