According to China’s Ministry of Finance, the State Council has approved 10 local governments as part of a pilot program to give them the authority to issue municipal bonds and be responsible for the repayment of their debts.
Prior to the pilot program, the central government was responsible for the payments of interest and principal on the bonds that the local governments issued. These payments were then deducted from the funds the central government allocated to the local governments.
The 10 local governments are Shanghai, Zhenjiang Province, Guangdong Province, Shenzhen, Jiangsu Province, Shandong Province, Beijing, Jiangxi Province, Ningxia Autonomous Region and Qingdao. Of these 10 governments, Ningxia and Jiangxi are considered to have a strong solvency. Their 2013 debt ratios were 50.5 percent and 68 percent respectively. The estimated value of the bonds may reach 150 billion yuan and they may mature in five, seven, and 10 years. These bonds will become part of China’s first-ever municipal bond market.
Source: China Securities, May 21, 2014.