First local government bonds issued
April 16, 2009 | BY
clpstaff &clp articles &Xinjiang gets new chance to raise money
China has issued its first, tradable local government bonds. The Ministry of Finance issued Rmb3 billion three-year bonds on behalf of the Xinjiang Uyghur Autonomous Region, with underwriting occurring between March 30 and April 1. From April 3, the bonds could be traded on the interbank market and securities exchanges.
“The debt paying ability of Xinjiang is strong enough to repay local government bonds on schedule,” said Kong Wei, a Beijing-based partner of Grandall Legal Group.
Anhui province auctioned Rmb4 billion of its own three-year bonds on March 31.
The central government has moved quickly to provide local authorities new means of raising funds: in December 2008, draft regulations were sent to the State Council, which reviewed them and submitted them to the Standing Committee in time for approval at the recent National People's Congress annual meeting.
Since then, local governments across the country have requested, and won, approval to issue their own debt. Among those governments are Guangdong and Sichuan, which both hope to issue Rmb11 billion of bonds (statistics are sourced from the National Business Daily).
According to Article 28 of 1994's PRC Budget Law (??????????), local governments are not allowed to issue bonds themselves, “except as otherwise prescribed by laws or the State Council”. All bonds will therefore be guaranteed by the Ministry of Finance, which will act as a bond issuing agent and distribute interest payments on behalf of local governments.
This way of issuing bonds should make the issuing procedure easier and reduce costs for local governments. But Kong said she foresaw some potential problems.
“The issuing system lacks stability as there are no uniform regulations for issuing,” she said. “There are no applicable channels for issuing local government bonds, a credit rating system needs to be constructed for issuing local government bonds, and a supervision systems need to be perfected for using the capital of the bonds.”
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