China details rules for special local government bonds

[BEIJING] China's Finance Ministry has released rules for 100 billion yuan worth (S$22.3 billion) of "special bonds" that local governments will be allowed to issue this year to raise funds for construction of public projects.

The new rules, combined with rules announced last month for 500 billion yuan in general bonds, complete the framework for local governments to begin full-scale issuance of debt directly to the markets, in a drive to boost transparency and discipline in local government finance.

Saddled with more than US$3 trillion worth of local government debt, China wants to rein in its public borrowing by allowing authorities to raise funds only from bond investors, while closing off covert funding routes that local governments have resorted to in the past.

Governments can fix the maturities of the special bonds at one, two, three, five, seven or 10 years, although the proportion of seven- and 10-year bonds combined cannot exceed half of a government's total issuance in a year, the ministry said.

The ministry said in a statement on its website that bond issuers would obtain ratings from credit agencies and make timely disclosures about the financial health of the investments underlying the bonds.

The bonds will carry a fixed interest rate.

Investors must judge the risks for themselves and be responsible for any losses, it said.

Governments for their part should pro-actively expand the pool of buyers for the bonds to include individuals, insurance companies and social insurance funds, it said.

REUTERS